Item 8. Consolidated Financial Statements and Supplementary Data
o All schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or
related notes.
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(1) Description of Business and Summary of Significant Accounting Policies
Description of Business and Concentration of Credit Risk
The Company, based out of Easton, Pennsylvania, (also referred to as "SI
Systems") is a specialized systems integrator supplying SI Systems' branded
automated material handling systems to manufacturing, assembly, order
fulfillment, and distribution operations customers located primarily in North
America, including the U.S. government. The Company's automated material
handling systems are marketed, designed, sold, installed, and serviced by its
own staff or subcontractors as labor-saving devices to improve productivity,
quality, and reduce costs. SI Systems' branded products are utilized to automate
the movement or selection of products and are often integrated with other
automated equipment such as conveyors and robots. The Company's integrated
material handling solutions involve both standard and specially designed
components and include integration of non-proprietary automated handling
technologies to provide turnkey solutions for its customers' unique material
handling needs. The Company's engineering staff develops and designs computer
control programs required for the efficient operation of the systems and for
optimizing manufacturing, assembly, and fulfillment operations.
The Company's systems vary in configuration and capacity. Historically,
system prices across the Company's product lines have ranged from $100,000 to
several million dollars per system. Systems and aftermarket sales during the
years ended December 31, 2007, 2006, and 2005 are as follows (in thousands):
For the year ended December 31, 2007:
% of Total
SI Systems Sales
------------------- ------------------
Systems sales................................. $ 17,737 82.7%
Aftermarket sales............................. 3,711 17.3%
------------------- ------------------
Total sales................................... $ 21,448 100.0%
=================== ==================
|
For the year ended December 31, 2006:
% of Total
SI Systems Sales
------------------- ------------------
Systems sales................................. $ 14,576 81.9%
Aftermarket sales............................. 3,212 18.1%
------------------- ------------------
Total sales................................... $ 17,788 100.0%
=================== ==================
|
For the year ended December 31, 2005:
% of Total
SI Systems Sales
------------------- ------------------
Systems sales................................. $ 13,614 81.6%
Aftermarket sales............................. 3,062 18.4%
------------------- ------------------
Total sales................................... $ 16,676 100.0%
=================== ==================
|
The Company's products are sold worldwide through its own sales personnel.
Domestic and international sales during the years ended December 31, 2007, 2006,
and 2005 are as follows (in thousands):
44
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(1) Description of Business and Summary of Significant Accounting Policies
(Continued)
Description of Business and Concentration of Credit Risk (Continued)
For the year ended December 31, 2007:
% of Total
SI Systems Sales
------------------- ------------------
Domestic sales................................ $ 14,935 69.6%
International sales........................... 6,513 30.4%
------------------- ------------------
Total sales................................... $ 21,448 100.0%
=================== ==================
|
For the year ended December 31, 2006:
% of Total
SI Systems Sales
------------------- ------------------
Domestic sales................................ $ 16,866 94.8%
International sales........................... 922 5.2%
------------------- ------------------
Total sales................................... $ 17,788 100.0%
=================== ==================
|
For the year ended December 31, 2005:
% of Total
SI Systems Sales
------------------- ------------------
Domestic sales................................ $ 15,966 95.7%
International sales........................... 710 4.3%
------------------- ------------------
Total sales................................... $ 16,676 100.0%
=================== ==================
|
Sales from external customers for each of the Company's products during the
years ended December 31, 2007, 2006, and 2005 are as follows (in thousands):
December 31, 2007 December 31, 2006 December 31, 2005
--------------------------- --------------------------- ---------------------------
% of Total % of Total % of Total
Sales Sales Sales Sales Sales Sales
------------ ------------ ------------ ------------ ------------ ------------
LO-TOW(R) sales................ $ 6,367 29.7% $ 6,458 36.3% $ 5,691 34.1%
CARTRAC(R) sales............... 119 .5% 1,975 11.1% 34 .2%
DISPEN-SI-MATIC(R),
SINTHESIS(R), and
related order fulfillment
sales....................... 11,216 52.3% 6,092 34.2% 7,813 46.9%
Other sales.................... 35 .2% 51 .3% 76 .4%
Aftermarket sales.............. 3,711 17.3% 3,212 18.1% 3,062 18.4%
------------ ------------ ------------ ------------ ------------ ------------
Total sales................. $ 21,448 100.0% $ 17,788 100.0% $ 16,676 100.0%
============ =========== ============ ============ ============ ============
|
In the year ended December 31, 2007, two customers accounted for over 10%
of sales, and they are listed as follows: Vistakon, a division of Johnson &
Johnson Vision Care - $7,625,000 or 35.6%, and General Motors - $3,008,000 or
14.0%. In the year ended December 31, 2006, one customer accounted for over 10%
of sales and is listed as follows: Caterpillar - $2,098,000 or 11.8% of total
sales. In the year ended December 31, 2005, five customers accounted for over
10% of sales, and they are listed as follows: BMG Direct Marketing - $2,492,000
or 14.9%, SI/BAKER - $1,990,000 or 11.9%, Vistakon, a division of Johnson &
Johnson Vision Care - $1,867,000 or 11.2%, E-Z-GO Division of Textron -
$1,812,000 or 10.9%, and Honda of America Mfg. - $1,723,000 or 10.3%. No other
customer accounted for over 10% of sales.
45
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(1) Description of Business and Summary of Significant Accounting Policies
(Continued)
Description of Business and Concentration of Credit Risk (Continued)
The Company's 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. Generally, contract
terms are net 30 days for product and parts sales, with progress payments for
system-type projects. As of December 31, 2007, two customers owed the Company in
excess of 10% of trade receivables, and they are listed as follows: Cummins
Engine - $1,451,000 or 55.0% and Vistakon, a division of Johnson & Johnson
Vision Care - $344,000 or 13.0%. No other customer owed the Company in excess of
10% of trade receivables. The Company believes that the concentration of credit
risk in its trade receivables is substantially mitigated by the Company's
ongoing credit evaluation process as well as the general creditworthiness of its
customer base.
Principles of Consolidation
The consolidated financial statements for the fiscal years ended prior to
2006 include the accounts of SI Systems and Ermanco, a wholly owned subsidiary,
after elimination of intercompany balances and transactions.
Use of Estimates
The preparation of the financial statements, in conformity with U.S.
generally accepted accounting principles, requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The
judgments made in assessing the appropriateness of the estimates and assumptions
utilized by management in the preparation of the financial statements are based
on historical and empirical data and other factors germane to the nature of the
risk being analyzed. Materially different results may occur if different
assumptions or conditions were to prevail. Estimates and assumptions are mainly
utilized to establish the appropriateness of the inventory reserve, warranty
reserve, and revenue recognition.
Financial Instruments
The Company believes the market values of its assets and liabilities, which
are financial instruments, approximate their carrying values due to the
short-term nature of the instruments.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, cash on deposit, amounts invested on an overnight basis with a
bank, and other highly liquid investments purchased with an original maturity of
three months or less. The Company does not believe it is exposed to any
significant credit risk on cash and cash equivalents.
Short-Term Investments
The Company's short-term investments are comprised of debt securities, all
classified as available for sale, that are carried at cost, which approximates
fair value of the investments at period end. These debt securities include state
and municipal bonds. The short-term investments are on deposit with a major
financial institution and are supported by letters of credit.
46
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(1) Description of Business and Summary of Significant Accounting Policies
(Continued)
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts determined by a
specific identification of individual accounts and other accounts based on
historical experience. The Company writes off receivables upon determination
that no further collections are probable. The allowance for doubtful accounts
was $0 at December 31, 2007 and 2006.
Inventories
Inventories are valued at the lower of average cost or market. Inventories
primarily consist of materials purchased or manufactured for stock.
Property, Plant and Equipment
Plant and equipment are recorded at cost and generally are depreciated on
the straight-line method over the estimated useful lives of individual assets.
The ranges of lives used in determining depreciation rates for machinery and
equipment is generally 3 - 7 years. Maintenance and repairs are charged to
operations; betterments and renewals are capitalized. Upon sale or retirement of
plant and equipment, the cost and related accumulated depreciation are removed
from the accounts and the resultant gain or loss, if any, is credited or charged
to earnings.
Asset Impairment
The Company reviews the recovery of the net book value of long-lived assets
whenever events and circumstances indicate that the net book value of an asset
may not be recoverable from the estimated undiscounted future cash flows
expected to result from its use and eventual disposition. In cases where
undiscounted expected future cash flows are less than the net book value, an
impairment loss is recognized equal to an amount by which the net book value
exceeds the fair value of assets.
Revenue Recognition
Revenues on systems contracts, accounted for in accordance with SOP 81-1 of
the American Institute of Certified Public Accountants, are recorded on the
basis of the Company's estimates of the percentage of completion of individual
contracts. Gross margin is recognized on the basis of the ratio of aggregate
costs incurred to date to the most recent estimate of total costs. As contracts
may extend over one or more years, revisions in cost and profit estimates during
the course of the work are reflected in the accounting periods in which the
facts requiring revisions become known. At the time a loss on a contract becomes
known, the entire amount of the estimated ultimate loss is accrued.
Revenues on other sales of parts or equipment are recognized when title
transfers pursuant to shipping terms. There are no installation or customer
acceptance aspects of these sales.
The Company records advance payments for unearned support contracts in the
balance sheet as a current liability. Revenue on individual support contracts is
deferred and recognized on a straight-line basis over the one-year term of each
individual support contract.
Product Development Costs
The Company expenses product development costs as incurred.
47
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(1) Description of Business and Summary of Significant Accounting Policies
(Continued)
Accrued Product Warranty
The Company's products are warranted against defects in materials and
workmanship for varying periods of time depending on customer requirements and
the type of system sold, with a typical warranty period of one year. The Company
provides an accrual for estimated future warranty costs and potential product
liability claims based upon a percentage of cost of sales, typically two percent
of the cost of the system being sold, and a detailed review of products still in
the warranty period is performed each quarter.
A roll-forward of warranty activities is as follows (in thousands):
Beginning Additions (Reductions) Ending
Balance Charged to Balance
January 1 Costs and Expenses Deductions December 31
--------------- ------------------------- --------------- ------------------
2007.............. $ 192 128 (86) 234
2006.............. $ 189 71 (68) 192
2005.............. $ 490 (242) (59) 189
|
Unearned Support Contract Revenue
The Company offers its Order Fulfillment customers one-year support
contracts for an annual service fee. The support contracts cover a customer's
single distribution center or warehouse where the Company's products are
installed. As part of its support contracts, the Company provides analysis,
consultation, and technical information to the customer's personnel on matters
relating to the operation of its Order Fulfillment System and related equipment
and/or peripherals.
The Company records advance payments for unearned support contracts in the
balance sheet as a current liability. Revenue on individual support contracts is
deferred and recognized on a straight-line basis over the one-year term of each
individual support contract.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board issued SFAS No.
123 (revised) "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R addresses
all forms of share-based payment awards, including shares issued under employee
stock purchase plans, stock options, restricted and nonvested stock, and stock
appreciation rights. It requires companies to recognize in the statement of
operations the grant-date fair value of stock options and other equity-based
compensation issued to employees. The statement eliminates the intrinsic
value-based method prescribed by APB Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, that the Company used prior to
January 1, 2006.
48
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(1) Description of Business and Summary of Significant Accounting Policies
(Continued)
Stock-Based Compensation (Continued)
Effective January 1, 2006, the Company adopted SFAS No. 123R and began
expensing the grant-date fair value of employee stock options over the related
requisite service period. Prior to January 1, 2006, the Company applied
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its stock option
plans. Accordingly, no compensation expense was recognized in net income for
employee stock options, as options granted had an exercise price equal to the
market value of the underlying common stock on the date of grant. The Company
recognized compensation expense on options granted to non-employee directors.
Stock-based compensation expense was approximately $6,000 for employee stock
options for the year ended December 31, 2007. The impact of adopting SFAS No.
123R in 2006 was approximately $7,000 of stock-based compensation expense for
employee stock options and did not have a significant impact on basic and
diluted earnings per share for the year ended December 31, 2006. The pro forma
impact of expensing employee stock options in 2005 would have been $27,000 or a
reduction of diluted earnings per share by approximately $.01 for the year based
on the disclosures required by SFAS No. 123.
The Company adopted SFAS No. 123R using the modified prospective transition
method and therefore has not restated prior periods. Under this transition
method, compensation cost associated with employee stock options recognized in
2007 and 2006 includes attribution of the fair value related to the remaining
unvested portion of stock option awards granted prior to January 1, 2006, and
attribution related to new awards granted after January 1, 2006.
The expense associated with stock-based compensation arrangements is a
non-cash charge. In the Consolidated Statements of Cash Flows, stock-based
compensation expense is an adjustment to reconcile net income to cash provided
(used) by operating activities.
Prior to the adoption of SFAS No. 123R, the Company presented tax benefits,
if any, resulting from stock-based compensation as operating cash flows in the
Consolidated Statements of Cash Flows. SFAS No. 123R requires that certain cash
flows resulting from tax deductions in excess of compensation cost recognized in
the financial statements be classified as financing cash flows. For the years
ended December 31, 2007 and 2006, no excess tax benefits were generated.
For stock options granted prior to the adoption of SFAS No. 123R, the
effect on net income and earnings per share if the Company had applied the fair
value recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," to its stock option plan would have been as follows:
49
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(1) Description of Business and Summary of Significant Accounting Policies
(Continued)
Stock-Based Compensation (Continued)
For the Year
Ended
December 31, 2005
-----------------
Net income, as reported.................................. $ 1,198
Deduct: total stock-based employee
compensation expense determined
under fair value based method, net of
related tax effects................................... (27)
----------------
Pro forma net income..................................... $ 1,171
================
Basic earnings per share:
As reported........................................... $ .29
Pro forma............................................. $ .29
Diluted earnings per share:
As reported........................................... $ .29
Pro forma............................................. $ .28
|
Earnings Per Share
Basic and diluted earnings per share for the years ended December 31, 2007,
2006, and 2005 are based on the weighted average number of shares outstanding.
In addition, diluted earnings per share reflect the effect of dilutive
securities which include the shares that would be outstanding assuming the
exercise of dilutive stock options. The number of shares that would be issued
from the exercise has been reduced by the number of shares that could have been
purchased from the proceeds at the average market price of the Company's common
stock.
Recently Issued Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board issued
Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes--an
interpretation of FASB Statement No. 109, Accounting for Income Taxes, which
clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. The Interpretation requires that the Company recognize in the
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and disclosure. The
Company adopted the provisions of FIN 48 on January 1, 2007.
In September 2006, the Financial Accounting Standards Board issued SFAS No.
157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 defines fair value,
establishes a market-based framework or hierarchy for measuring fair value, and
expands disclosures about fair value measurements. SFAS No. 157 is applicable
whenever another accounting pronouncement requires or permits assets and
liabilities to be measured at fair value. SFAS No. 157 does not expand or
require any new fair value measures. The provisions of SFAS No. 157 are to be
applied prospectively and are effective for financial statements issued for
fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact, if any, the adoption of SFAS No. 157 will have on the
Company's financial statements.
50
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(1) Description of Business and Summary of Significant Accounting Policies
(Continued)
Recently Issued Accounting Pronouncements (Continued)
In February 2007, the Financial Accounting Standards Board issued SFAS No.
159, The Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement No. 115 ("SFAS No. 159"). SFAS No. 159
permits entities to elect to measure many financial instruments and certain
other items at fair value. Upon adoption of SFAS No. 159, an entity may elect
the fair value option for eligible items that exist at the adoption date.
Subsequent to the initial adoption, the election of the fair value option should
only be made at initial recognition of the asset or liability or upon a
remeasurement event that gives rise to new-basis accounting. The decision about
whether to elect the fair value option is applied on an instrument-by-instrument
basis, is irrevocable and is applied only to an entire instrument and not only
to specified risks, cash flows or portion of that instrument. SFAS No. 159 does
not affect any existing accounting literature that requires certain assets and
liabilities to be carried at fair value nor does it eliminate disclosure
requirements included in other accounting standards. SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact, if any, the adoption of SFAS No. 159 will have on the
Company's financial statements.
In December 2007, the Financial Accounting Standards Board issued SFAS No.
141(R), Business Combinations ("SFAS No. 141R"). SFAS No. 141R replaces SFAS No.
141, Business Combinations and applies to all transactions or other events in
which an entity obtains control of one or more businesses. SFAS No. 141R
requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction;
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed; and requires the acquirer to disclose
additional information needed to evaluate and understand the nature and
financial effect of the business combination. SFAS No. 141R is effective
prospectively for fiscal years beginning after December 15, 2008 and may not be
applied before that date. The Company is currently evaluating the impact, if
any, the adoption of SFAS No. 141R will have on the Company's financial
statements.
In December 2007, the Financial Accounting Standards Board issued SFAS No.
160, Noncontrolling Interests in Consolidated Financial Statements--an amendment
of ARB No. 51 ("SFAS No. 160"). SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008, with earlier adoption prohibited. SFAS No. 160 requires the recognition of
a noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the parent's equity. The amount of net
earnings attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. SFAS No. 160 also
amends certain of ARB No. 51's consolidation procedures for consistency with the
requirements of SFAS No. 141R. SFAS No. 160 also includes expanded disclosure
requirements regarding the interests of the parent and its noncontrolling
interest. The Company is currently evaluating the impact, if any, the adoption
of SFAS No. 160 will have on the Company's financial statements.
51
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(2) Discontinued Operations -- Sale of Ermanco
On May 20, 2005, the Company and Ermanco entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement") with TGW Transportgerate GmbH, an
Austrian corporation ("Buyer Parent"), and Malibu Acquisition, Inc., a Michigan
corporation and wholly owned subsidiary of Buyer Parent ("Buyer"), pursuant to
which Paragon agreed to sell to Buyer substantially all of the assets and
liabilities of Ermanco, Paragon's conveyor and sortation subsidiary located in
Spring Lake, Michigan. The terms of the Asset Purchase Agreement provided that
Buyer pay cash in the amount of $23 million (subject to a working capital
adjustment and an accounts receivable adjustment) and assume certain liabilities
of Ermanco, as more fully described in the Asset Purchase Agreement, a copy of
which was filed as an attachment to the Company's definitive proxy statement
with the Securities and Exchange Commission on July 1, 2005. At a Special
Meeting of Stockholders held on August 3, 2005, the Company received approval
from its stockholders to sell substantially all of the assets and liabilities of
Ermanco.
On August 5, 2005, the Company completed the sale of substantially all of
the assets and liabilities of Ermanco, and received cash consideration of
$23,055,000 (subject to a working capital adjustment and an accounts receivable
adjustment). Transaction costs associated with the sale of the assets and
liabilities of Ermanco were approximately $1,038,000. During the fourth quarter
of 2005, the Company paid approximately $448,000 to the Buyer in connection with
the working capital adjustment and $61,000 in connection with the accounts
receivable adjustment. Therefore, the Company received cash consideration of
$21,508,000, net of transactions costs and the working capital and the accounts
receivable adjustments in connection with the sale of the assets and liabilities
of Ermanco, thereby resulting in a pre-tax loss on the sale of approximately
$964,000.
Ermanco and Paragon indemnified the Buyer and Buyer Parent for, among other
things, a breach of any representation, warranty, covenant, or agreement set
forth under the terms of the Asset Purchase Agreement. Paragon and Ermanco will
have no liability to Buyer or Buyer Parent with respect to claims for breaches
of representations and/or warranties until the aggregate amount of loss relating
to such breaches exceeds $230,000, and then only for such amount that exceeds
$230,000. The overall aggregate indemnification liability of Paragon and Ermanco
shall not exceed $5,750,000. At the closing of the asset sale, Paragon delivered
to the Buyer an irrevocable letter of credit in the amount of $2 million as
security for its indemnification obligations. The letter of credit remained in
place to August 5, 2006, the one-year anniversary of the closing sale of the
asset sale. There was no claim under the letter of credit during its existence.
Ermanco and Paragon agreed that for a period of 3 years following the
closing of the transaction, each will not solicit any employee, customer, or
supplier of Buyer to leave Buyer's employment or alter its business dealings
with the Buyer.
In accordance with Financial Accounting Standards Board ("FASB") Statement
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the
results of operations for Ermanco's business activities are reported as a
discontinued operation and accordingly, the accompanying consolidated financial
statements have been reclassified to report separately the operating results of
this discontinued operation.
52
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(2) Discontinued Operations -- Sale of Ermanco (Continued)
The following are the condensed results of operations for Ermanco (in
thousands):
December 31, 2005
-----------------
Net sales............................................... $ 28,132
-----------------
Income from operations before income taxes.............. $ 2,523
Income tax expense...................................... 916
-----------------
Income from operations after income taxes............... 1,607
Loss on sale before income taxes........................ (964)
Income tax benefit...................................... (347)
-----------------
Loss on sale after income tax benefit................... (617)
-----------------
Income from discontinued operations..................... $ 990
=================
|
(3) Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts are as follows (in
thousands):
December 31, 2007 December 31, 2006
---------------------- -----------------------
Costs and estimated earnings on
uncompleted contracts........................... $ 15,478 14,672
Less: billings to date............................ (17,188) (15,622)
----------------------- ------------------------
$ (1,710) (950)
======================= ========================
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings
in excess of billings....................... $ 1,353 444
Customers' deposits and billings in
excess of costs and estimated earnings...... (3,063) (1,394)
----------------------- ------------------------
$ (1,710) (950)
======================= ========================
|
(4) Line of Credit
The Company has a line of credit facility which may not exceed $5,000,000
and is to be used primarily for working capital purposes. Interest on the line
of credit facility is at the LIBOR Market Index Rate plus 1.4%. As of December
31, 2007, the Company did not have any borrowings under the line of credit
facility; however, the leasing agreement associated with the Company's principal
office is secured with a $200,000 letter of credit. Therefore, as of December
31, 2007, the amount of available line of credit was $4,800,000.
The line of credit facility contains various non-financial covenants and is
secured by all of the Company's accounts receivable and inventory. The Company
was in compliance with all covenants as of December 31, 2007. The line of credit
facility expires effective June 30, 2008. The Company expects to renew the line
of credit facility under similar terms and conditions during 2008.
53
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(5) Stock Options and Nonvested Stock
1997 Equity Compensation Plan
The Company's stock-based compensation program, the 1997 Equity
Compensation Plan ("ECP"), expired in July 2007. Prior to expiration, the ECP
provided for grants of stock options, restricted and nonvested stock, and stock
appreciation rights to selected employees, key advisors who performed valuable
services, and directors of the Company. In addition, the ECP provided for grants
of performance units to employees and key advisors. Prior to expiration, the
ECP, as amended by stockholders in August 2000 and June 2001, authorized up to
1,012,500 shares of common stock for issuance pursuant to the terms of the plan.
No further grants are available under the plan.
Under the Company's ECP, officers, directors, and key employees have been
granted options to purchase shares of common stock at the market price at the
date of grant. Options vest in four equal annual installments beginning on the
first anniversary of the date of grant; thus, at the end of four years, the
options are fully exercisable. Vested stock option awards may be exercised
through payment of cash, exchange of mature shares, or through a broker. As of
December 31, 2007, 7,500 options are outstanding under the plan, and all options
have a term of seven years.
Stock-based compensation expense recognized during the years ended December
31, 2007 and 2006 for stock-based compensation programs was $14,000 and $37,000,
respectively. Stock-based compensation expense recognized during the years ended
December 31, 2007 and 2006 consisted of expensing $6,000 and $7,000,
respectively, for employee stock options, and $0 and $4,000, respectively, for
directors' stock options, and $8,000 and $26,000, respectively, for nonvested
stock. Stock-based compensation expense recognized during the year ended
December 31, 2005 consisted of expensing $18,000 for directors' stock options.
All of the stock-based compensation expense recognized was a component of
selling, general and administrative expenses. Income was recognized during the
three months ended March 31, 2007 as a result of the forfeiture of 5,000 shares
of nonvested stock due to the resignation of Mr. Hoffner from the Company
effective March 1, 2007.
Stock Options
On March 8, 2006, the Board of Directors of the Company granted 12,500
stock options to its executive officers. The fair value of options granted was
estimated using the Black Scholes option valuation model that used the
assumptions noted in the table below. Expected volatility and expected dividend
yield are based on actual historical experience of the Company's stock and
dividends over the historical period equal to the option term. The dividend
yield on the Company's common stock is assumed to be zero since the Company has
not paid any cash dividends since 1999 and has no present intention to declare
cash dividends. The expected life represents the period of time that options
granted are expected to be outstanding and was calculated using the simplified
method. The assumptions given below result from certain groups of employees
exhibiting different behavior. The Company does not expect to have any
forfeitures of its stock option awards based on the historical experience of the
group of employees that received the stock option awards. The risk-free rate is
based on the U. S. Treasury Securities with terms equal to the expected time of
exercise as of the grant date.
------------------------------------------------------------
Expected volatility............................ 18.0%
Expected dividend yield........................ 0.0%
Expected life (in years)....................... 4.75
Risk-free interest rate........................ 4.75%
-------------------------------------------------------------
|
54
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(5) Stock Options and Nonvested Stock (Continued)
Stock Options (Continued)
The grant-date fair value of options granted on March 8, 2006 was $2.60 per
option.
A summary of stock option activity is presented below:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Term Intrinsic
Options Price (In Years) Value
--------- ------------- ----------------------- --------------
Outstanding at January 1, 2007........... 32,500 $ 8.89
Granted................................ - -
Exercised.............................. - -
Forfeited.............................. (25,000) 8.56
---------- ------------
Outstanding at December 31, 2007......... 7,500 $ 10.01 5.2 $ -
========== ============
Exercisable at December 31, 2007......... 1,875 $ 10.01 5.2 $ -
|
During the year ended December 31, 2006, the Company received 10,944 shares
of its common stock as payment for the exercise of 12,535 stock options in
accordance with the ECP. The total intrinsic value of stock options exercised
during the year ended December 31, 2006 was $13,663. Upon the exercise of stock
options under the 1997 ECP, the Company issues new common stock from its
authorized shares.
There were no stock options granted during the year ended December 31,
2007.
The compensation expense recognized during the years ended December 31,
2007 and 2006 for stock options was $6,000 and $7,000, respectively. The total
compensation expense of $23,000 is expected to be recognized on the
straight-line basis over the stated vesting period consistent with the terms of
the arrangement. As of December 31, 2007, there is unrecognized compensation
cost of $11,000 on the stock option awards which will be recognized over the
next 2.2 years.
As of December 31, 2005, there were no unvested employee stock options.
Therefore, no compensation cost related to stock options granted to employees
prior to January 1, 2006 was recognized.
Nonvested Stock
The grant-date fair value of nonvested stock is determined on the date of
grant based on the market price of the stock, and compensation cost is generally
amortized to expense on a straight-line basis over the vesting period during
which employees perform related services.
On March 8, 2006, the Company issued 12,500 shares of nonvested stock to
its executive officers. Participants are entitled to cash dividends and to vote
their respective shares. The shares are subject to forfeiture if employment is
terminated prior to March 8, 2010.
On March 1, 2007, Mr. Hoffner resigned from his positions as President and
CEO and as a director of the Company. Due to his resignation from the Company,
Mr. Hoffner forfeited his 5,000 shares of nonvested stock.
55
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(5) Stock Options and Nonvested Stock (Continued)
Nonvested Stock (Continued)
A summary of nonvested stock activity is presented below:
Nonvested Shares Grant Date Fair Value
------------------------------- ---------------------------
Nonvested at January 1, 2007.......... 12,500 $ 10.01
Granted............................ - -
Vested............................. - -
Forfeited.......................... (5,000) 10.01
------------------------------- ---------------------------
Nonvested at December 31, 2007........ 7,500 $ 10.01
=============================== ===========================
|
The compensation expense recognized during the years ended December 31,
2007 and 2006 for nonvested stock awards was $8,000 and $26,000, respectively.
The total compensation cost of $75,000 is expected to be recognized on the
straight-line basis over the four-year vesting period consistent with the terms
of the arrangement. As of December 31, 2007, there is unrecognized compensation
cost of $41,000 on the nonvested stock awards which will be recognized over the
next 2.2 years.
(6) Employee Benefit Plans
The Company has a defined contribution Retirement Savings Plan for its
employees. Employees age 21 and above, with at least 90 days of service, are
eligible to participate in the Plan. Under the 401(k) feature of the Plan, the
Company matches 100% of the first 3% of pay which the employee contributes to
the Plan and 50% of the next 2% of pay which the employee contributes to the
Plan. The Plan also contains provisions for profit sharing contributions in the
form of cash as determined annually by the Company's Board of Directors;
however, there were no profit sharing contributions for the years ended December
31, 2007, 2006, and 2005. Total expense for the Retirement Savings Plan was
$174,000, $147,000, and $129,000 for the years ended December 31, 2007, 2006,
and 2005, respectively.
(7) Income Taxes
The provision for income tax expense (benefit) associated with continuing
operations consists of the following (in thousands):
For the Year Ended For the Year Ended For the Year Ended
December 31, 2007 December 31, 2006 December 31, 2005
------------------------- -------------------------- ------------------------
Federal - current.......... $ (434) (168) (251)
- deferred......... 42 152 338
------------------------- -------------------------- ------------------------
(392) (16) 87
------------------------- -------------------------- ------------------------
State - current.......... (26) (23) 1
- deferred......... (15) 20 5
------------------------- -------------------------- ------------------------
(41) (3) 6
------------------------- -------------------------- ------------------------
Foreign - current.......... - - -
------------------------- -------------------------- ------------------------
$ (433) (19) 93
========================= ========================== ========================
|
56
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(7) Income Taxes (Continued)
The income tax expense (benefit) was allocated as follows (in thousands):
For the Year Ended For the Year Ended For the Year Ended
December 31, 2007 December 31, 2006 December 31, 2005
------------------------ -------------------------- ------------------------
Continuing operations........ $ (433) (19) 93
Discontinued operations...... - - 569
------------------------ -------------------------- ------------------------
$ (433) (19) 662
======================== ========================== ========================
|
The reconciliation between the U.S. federal statutory rate and the
Company's effective income tax rate associated with continuing operations is (in
thousands):
For the Year Ended For the Year Ended For the Year Ended
December 31, 2007 December 31, 2006 December 31, 2005
------------------------ -------------------------- ------------------------
Computed tax expense
(benefit) at statutory
rate of 34%................ $ (31) 153 102
Increase (reduction) in
taxes resulting from:
State income taxes,
net of federal
benefit................ (27) (2) 4
Tax-exempt
interest............... (97) (151) (86)
Change in tax
contingency
reserve................ (309) (49) -
Miscellaneous items...... 31 30 73
------------------------ -------------------------- ------------------------
$ (433) (19) 93
======================== ========================== ========================
|
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities associated with continuing
operations at December 31, 2007 and 2006 are presented below (in thousands):
December 31, December 31,
2007 2006
------------------- -----------------
Deferred tax assets:
Net operating and built-in loss carryforward...... $ 105 89
Credit carryforward............................... 29 -
Inventories....................................... 107 99
Accrued restructuring costs....................... 22 22
Accrued warranty costs............................ 92 74
Accruals for other expenses, not yet
deductible for tax purposes..................... 135 158
------------------- -----------------
Total gross deferred tax assets............... 490 442
------------------- -----------------
Deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation.................. (32) (24)
Prepaid expenses.................................. (34) (34)
------------------- -----------------
Total gross deferred tax liabilities.......... (66) (58)
------------------- -----------------
Net deferred tax assets....................... $ 424 384
=================== =================
|
57
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(7) Income Taxes (Continued)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. At December 31, 2007
approximately $650,000 of federal taxable income and $1,730,000 of state taxable
income is needed to fully realize the Company's recorded net deferred tax
assets. Based upon historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize the
benefits of these deductible differences at December 31, 2007.
On January 1, 2007, the Company adopted the Financial Accounting Standards
Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109, Accounting for Income
Taxes, which clarifies the accounting for uncertainty in income taxes. FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The Interpretation requires that the Company recognize in
the financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and disclosure.
As a result of the implementation of FIN 48, the Company recognized a
decrease of $37,000 in the liability for unrecognized tax benefits, which was
accounted for as an increase to the January 1, 2007 balance of retained
earnings. As of the date of adoption and after the impact of recognizing the
decrease in liability noted above, the Company's unrecognized tax benefits
totaled $692,000, of which $590,000 would impact the effective tax rate if
recognized.
The Company recognizes interest and penalties for income tax matters in
income tax expense. In conjunction with the adoption of FIN 48, the Company had
a balance of approximately $117,000 ($80,000, net of federal benefit) for
potential interest and penalties at January 1, 2007 which is included as a
component of the $692,000 unrecognized tax benefit noted above. To the extent
interest and penalties are not assessed with respect to uncertain tax positions,
amounts accrued will be reduced and reflected as a reduction of the overall
income tax provision.
A reconciliation of the beginning and ending amount of unrecognized tax
benefits, exclusive of interest and penalties, is as follows (in thousands):
Balance at January 1, 2007................................... $ 575
Increases related to prior year tax positions................ -
Decreases related to prior year tax positions................ -
Increases related to current year tax positions.............. -
Settlements.................................................. (3)
Lapse of statue.............................................. (369)
------------
Balance at December 31, 2007................................. $ 203
============
|
As of December 31, 2007, the Company's net unrecognized tax benefits
totaled $261,000, of which $193,000 would impact the effective tax rate if
recognized. As of December 31, 2007, the Company has a balance of approximately
$75,000 ($58,000, net
58
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(7) Income Taxes (Continued)
of federal benefit) for potential interest and penalties, which is a component
of the $261,000 unrecognized tax benefit noted above.
The Company estimates that the total unrecognized tax benefits may decrease
by approximately $30,000 due to the expiration of statutes of limitations prior
to December 31, 2008.
The Company is subject to U.S. federal income tax as well as income tax of
multiple state and foreign jurisdictions. The Company has substantially
concluded all U.S. federal income tax matters for years through 2003. The
Company has operations in approximately 30 state and foreign taxing
jurisdictions. The Company has substantially concluded state income tax matters
for years through 2001.
(8) Contingencies
From time to time, the Company is involved in various claims and legal
actions arising in the ordinary course of business. Although the amount of any
liability that could arise with respect to currently pending actions cannot be
accurately predicted, in the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's financial
position, results of operations, or liquidity.
(9) Commitments and Related Party Transactions
The Company's principal office is located in a 173,000 square foot,
concrete, brick, and steel facility in Easton, Pennsylvania. In connection with
the February 2003 sale of the Company's Easton, Pennsylvania facility, the
Company entered into a leaseback arrangement for approximately 25,000 square
feet of office space for five years. The leasing agreement requires fixed
monthly rental payments of $19,345. The terms of the lease also require the
payment of a proportionate share of the facility's operating expenses. The
leasing agreement is secured with a $200,000 letter of credit. On November 14,
2007, the Company amended the lease agreement to extend the term of the lease
for a period of five years commencing immediately upon the February 21, 2008
expiration date of the original term of the lease. The amended lease agreement
requires fixed monthly rental payments of $18,000 for five years through the
February 20, 2013 expiration date of the lease. The amended lease agreement
incorporates the terms and conditions of the original lease agreement.
In accordance with SFAS No. 13 and SFAS No. 28, the leaseback does not meet
the criteria for classification as a capital lease; hence, it is classified as
an operating lease. The sale-leaseback resulted in a total gain of $2,189,000,
of which $1,363,000 was recorded as a gain in 2003. The seller-lessee (Company)
retained more than a minor part (25,000 square feet) but less than substantially
all of the use of the property (173,000 square feet) through the leaseback and
realized a profit on the sale in excess of the present value of the minimum
lease payments over the lease term. The present value of the stream of lease
payments utilizing the Company's incremental borrowing rate of 10.0% was
$826,000. The $826,000 of deferred profit is amortized in equal amounts as a
reduction in rent expense over the five-year term of the lease. During the years
ended December 31, 2007, 2006, and 2005, $165,000, $165,000, and $165,000,
respectively, of the deferred gain was recognized.
59
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(9) Commitments and Related Party Transactions (Continued)
Total rental expense in the years ended December 31, 2007, 2006, and 2005
approximated $247,000, $259,000, and $231,000, respectively.
Future minimum rental commitments at December 31, 2007 are as follows (in
thousands):
Operating Leases
--------------------
2008............................................ $ 219
2009............................................ 216
2010............................................ 216
2011............................................ 216
2012............................................ 216
After 2012...................................... 36
--------------------
Total ........................................ $ 1,119
====================
|
On September 20, 2005, the Board of Directors of the Company, upon the
recommendation of the Board's Nominating Committee, unanimously voted to elect
Mr. Joel L. Hoffner as a Director of the Company to fill the vacancy created by
the resignation of Mr. Steven Shulman on August 8, 2005. Mr. Hoffner had been a
consultant to SI Handling Systems, Inc. and Paragon Technologies, Inc. for
various marketing and business evaluation assignments from 1995 through 2005.
From September 1, 2005 through December 31, 2005, Mr. Hoffner provided
consulting services related to the Company's corporate development pursuant to
the terms of a consulting agreement by and between the Company and The QTX Group
dated September 1, 2005. In consideration for their services, The QTX Group
received $7,500 per month and reimbursement for all reasonable and necessary
out-of-pocket expenses directly incurred by Mr. Hoffner during the term of his
engagement with the Company. The parties terminated the consulting agreement
with The QTX Group on January 1, 2006, the time Mr. Hoffner's appointment as
President and Chief Executive Officer of the Company became effective.
Consulting expenses associated with The QTX Group in the year ended December 31,
2005 approximated $44,000. Mr. Hoffner resigned from his positions as President
and CEO and as a director of the Company effective March 1, 2007.
On November 15, 2005, the Company announced the repurchase of 100,000
shares (or 2.67%) of its common stock in a private sale transaction for $975,000
(or $9.75 per share) from L. Jack Bradt, a member of the Company's Board of
Directors at the time of the transaction. The Company's non-interested Audit
Committee members and the Board of Directors approved the repurchase of Mr.
Bradt's shares. The closing market price of the Company's common stock on
November 14, 2005 was $10.09 per share.
(10) Cash Flow Information
---- ---------------------
Supplemental disclosures of cash flow information for the years ended
|
December 31, 2007, 2006, and 2005 are as follows (in thousands):
For the Year Ended For the Year Ended For the Year Ended
December 31, 2007 December 31, 2006 December 31, 2005
------------------------ ----------------------- -------------------------
Supplemental disclosures
of cash flow information:
Cash paid (received)
during the period for:
Interest expense........ $ 1 1 1
======================== ======================= =========================
Income taxes............ $ (41) (738) 2,718
======================== ======================= =========================
|
60
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(11) Quarterly Financial Information (Unaudited)
Selected Quarterly Financial Data
(In thousands, except per share amounts)
For the Year Ended First Second Third Fourth
December 31, 2007 Quarter Quarter Quarter Quarter
------------------------------------------------------- -------------- -------------- ------------- --------------
Net sales.......................................... $ 3,607 6,019 7,298 4,524
Gross profit on sales.............................. $ 930 1,475 1,739 1,076
Income (loss) from continuing operations........... $ (268) 11 656 (58)
Net income (loss).................................. $ (268) 11 656 (58)
Basic earnings (loss) per share:
Income (loss) from continuing operations........... $ (.09) - .24 (.02)
Net income (loss).................................. $ (.09) - .24 (.02)
Diluted earnings (loss) per share:
Income (loss) from continuing operations........... $ (.09) - .24 (.02)
Net income (loss).................................. $ (.09) - .24 (.02)
|
For the Year Ended First Second Third Fourth
December 31, 2006 Quarter Quarter Quarter Quarter
------------------------------------------------------- -------------- -------------- ------------- --------------
Net sales.......................................... $ 4,220 4,823 5,209 3,536
Gross profit on sales.............................. $ 1,287 1,508 1,401 1,100
Income from continuing operations.................. $ 1 171 239 57
Net income......................................... $ 1 171 239 57
Basic earnings per share:
Income from continuing operations.................. $ - .05 .07 .02
Net income......................................... $ - .05 .07 .02
Diluted earnings per share:
Income from continuing operations.................. $ - .05 .07 .02
Net income......................................... $ - .05 .07 .02
|
(12) Stock Repurchase Program
---- ------------------------
On August 12, 2004, the Company's Board of Directors approved a program to
|
repurchase up to $1,000,000 of its outstanding common stock. The Company's Board
of Directors amended its existing stock repurchase program on several occasions
during 2005 and 2006 by increasing the amount it has authorized management to
repurchase from up to $1,000,000 of the Company's common stock to up to
$14,000,000.
On August 19, 2005, the Company announced the repurchase of an aggregate of
359,200 shares (or 8.3%) of its common stock in a private sale transaction for
an aggregate of approximately $3,502,000 (or $9.75 per share) from Leon C.
Kirschner, the Company's former Chief Operating Officer, and Steven Shulman, a
former director of the Company. In these transactions, the Company, with
authorization from its Board of Directors, repurchased 190,091 shares from Mr.
Kirschner for approximately $1,853,000 and 169,109 shares from Mr. Shulman for
approximately $1,649,000, which represented their holdings of the Company's
common stock, and retired the shares. The closing market price of the Company's
common stock on August 18, 2005 was $12.60 per share.
61
PARAGON TECHNOLOGIES, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements (Continued)
(12) Stock Repurchase Program (Continued)
On November 15, 2005, the Company announced the repurchase of 100,000
shares (or 2.67%) of its common stock in a private sale transaction for $975,000
(or $9.75 per share) from L. Jack Bradt, a member of the Company's Board of
Directors at the time of the transaction. The Company's non-interested Audit
Committee members and the Board of Directors approved the repurchase of Mr.
Bradt's shares. The closing market price of the Company's common stock on
November 14, 2005 was $10.09 per share.
During the year ended December 31, 2007, the Company repurchased 99,699
shares of common stock at a weighted average cost, including brokerage
commissions, of $5.68 per share. Cash expenditures for the stock repurchases
during the year ended December 31, 2007 were $566,732. From the inception of the
Company's stock repurchase program on August 12, 2004 through December 31, 2007,
the Company repurchased 1,637,718 shares of common stock at a weighted average
cost, including brokerage commissions, of $8.62 per share. Cash expenditures for
the stock repurchases since the inception of the program were $14,116,143. As of
December 31, 2007, $883,857 remained available for repurchases under the stock
repurchase program.
Subsequent to December 31, 2007, the Company's Board of Directors amended
its existing stock repurchase program by increasing the amount it has authorized
management to repurchase from up to $15,000,000 of the Company's common stock to
up to $17,000,000.
Based on market conditions and other factors, additional repurchases may be
made from time to time, in compliance with SEC regulations, in the open market
or through privately negotiated transactions at the discretion of the Company.
There is no expiration date with regard to the stock repurchase program. The
purchase price for the shares of the Company's common stock repurchased was
reflected as a reduction to stockholders' equity. The Company allocates the
purchase price of the repurchased shares as a reduction to common stock for the
par value of the shares repurchased, with the excess of the purchase price over
par value being allocated between additional paid-in capital and retained
earnings. All shares of common stock that were repurchased by the Company since
the inception of the program were subsequently retired.
(13) Subsequent Events
---- -----------------
On January 9, 2008, the Company's Board of Directors amended its existing
|
stock repurchase program by increasing the amount it has authorized management
to repurchase from up to $15,000,000 of the Company's common stock to up to
$17,000,000.
62