Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2006. Commission File Number 1-9720
OR
[ ] TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________
Commission File Number __________
PAR TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 16-1434688
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
PAR Technology Park
8383 Seneca Turnpike
New Hartford, NY 13413-4991
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315) 738-0600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
(Check one): Large Accelerated Filer [ ] Accelerated Filer [X]
Non-Accelerated Filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares outstanding of registrant's common stock, as of July
31, 2006 - 14,181,082 shares.
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q
PART I
FINANCIAL INFORMATION
Item Number
-----------
Item 1. Financial Statements (unaudited)
- Consolidated Statements of Income for
the three and six months ended
June 30, 2006 and 2005
- Consolidated Statements of Comprehensive
Income for the three and six months
ended June 30, 2006 and 2005
- Consolidated Balance Sheets at
June 30, 2006 and December 31, 2005
- Consolidated Statements of Cash Flows
for the six months ended June 30, 2006 and 2005
- Notes to Unaudited Interim Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Item 4. Controls and Procedures
PART II
OTHER INFORMATION
Item 1A. Risk Factors
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
For the three months For the six months
ended June 30, ended June 30,
----------------------- ----------------------
2006 2005 2006 2005
--------- ---------- --------- ---------
Net revenues:
Product ...................................... $ 22,710 $ 22,930 $ 45,730 $ 43,931
Service ...................................... 14,886 14,416 28,631 27,818
Contract ..................................... 15,747 13,874 31,579 28,228
--------- --------- --------- ---------
53,343 51,220 105,940 99,977
--------- --------- --------- ---------
Costs of sales:
Product ...................................... 13,074 13,893 25,872 26,769
Service ...................................... 10,840 10,923 21,550 21,370
Contract ..................................... 14,518 12,944 29,244 26,509
--------- --------- --------- ---------
38,432 37,760 76,666 74,648
--------- --------- --------- ---------
Gross margin ........................... 14,911 13,460 29,274 25,329
--------- --------- --------- ---------
Operating expenses:
Selling, general and administrative .......... 8,194 7,323 16,269 14,716
Research and development ..................... 2,836 2,107 5,735 4,385
Amortization of identifiable intangible assets 308 244 615 490
--------- --------- --------- ---------
11,338 9,674 22,619 19,591
--------- --------- --------- ---------
Operating income .................................. 3,573 3,786 6,655 5,738
Other income, net ................................. 218 71 375 304
Interest expense .................................. (167) (65) (252) (143)
--------- --------- --------- ---------
Income before provision for income taxes .......... 3,624 3,792 6,778 5,899
Provision for income taxes ........................ (1,286) (1,441) (2,428) (2,242)
--------- --------- --------- ---------
Net income ........................................ $ 2,338 $ 2,351 $ 4,350 $ 3,657
========= ========= ========= =========
Earnings per share
Basic ........................................ $ .16 $ .17 $ .31 $ .27
Diluted ...................................... $ .16 $ .16 $ .29 $ .25
Weighted average shares outstanding
Basic ........................................ 14,173 13,674 14,162 13,553
========= ========= ========= =========
Diluted ...................................... 14,776 14,670 14,802 14,551
========= ========= ========= =========
See notes to unaudited interim consolidated financial statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
For the three months For the six months
ended June 30, ended June 30,
----------------------- ----------------------
2006 2005 2006 2005
--------- ---------- --------- ---------
Net income ........................................ $ 2,338 $ 2,351 $ 4,350 $ 3,657
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ..... 50 (228) 121 (365)
------- --------- ------- -------
Comprehensive income ............................. $ 2,388 $ 2,123 $ 4,471 $ 3,292
======= ========= ======= =======
See notes to unaudited interim consolidated financial statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
June 30, December 31,
2006 2005
---------- ----------
Assets
Current assets:
Cash and cash equivalents ........................... $ 2,068 $ 4,982
Accounts receivable-net ............................. 50,243 40,781
Inventories-net ..................................... 32,199 29,562
Income tax refunds .................................. 904 879
Deferred income taxes ............................... 4,356 5,690
Other current assets ................................ 2,848 2,598
--------- ---------
Total current assets ......................... 92,618 84,492
Property, plant and equipment - net ........................ 7,931 8,044
Goodwill ................................................... 20,854 20,622
Intangible assets - net .................................... 9,205 9,904
Other assets ............................................... 2,538 2,087
--------- ---------
$ 133,146 $ 125,149
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt ................... $ 77 $ 76
Borrowings under lines of credit .................... 8,088 3,500
Accounts payable .................................... 12,472 12,703
Accrued salaries and benefits ....................... 8,861 9,725
Accrued expenses .................................... 2,205 2,352
Customer deposits ................................... 3,235 3,973
Deferred service revenue ............................ 10,749 11,332
--------- ---------
Total current liabilities .................... 45,687 43,661
--------- ---------
Long-term debt ............................................. 1,909 1,948
--------- ---------
Deferred income taxes ...................................... 695 201
--------- ---------
Other long-term liabilities ................................ 1,429 847
--------- ---------
Commitments and contingent liabilities Shareholders' Equity:
Preferred stock, $.02 par value,
1,000,000 shares authorized ..................... -- --
Common stock, $.02 par value,
29,000,000 shares authorized;
15,959,386 and 15,914,958 shares issued;
14,181,082 and 14,136,654 outstanding ........... 319 318
Capital in excess of par value ...................... 37,736 37,271
Retained earnings ................................... 51,789 47,442
Accumulated other comprehensive loss ................ (490) (611)
Treasury stock, at cost, 1,778,304 shares ........... (5,928) (5,928)
--------- ---------
Total shareholders' equity ................... 83,426 78,492
--------- ---------
$ 133,146 $ 125,149
========= =========
See notes to unaudited interim consolidated financial statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the six months
ended June 30,
-------------------
2006 2005
-------- --------
Cash flows from operating activities:
Net income ................................................... $ 4,350 $ 3,657
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................... 1,914 1,834
Provision for bad debts ................................. 286 515
Provision for obsolete inventory ........................ 622 2,077
Equity based compensation ............................... 138 --
Tax benefit of stock option exercises ................... -- 2,476
Deferred income tax ..................................... 1,682 (1,516)
Changes in operating assets and liabilities:
Accounts receivable ................................. (9,748) (4,572)
Inventories ......................................... (3,259) (3,293)
Income tax refunds .................................. (25) --
Other current assets ................................ (250) (109)
Other assets ........................................ (451) (478)
Accounts payable .................................... (231) 1,829
Accrued salaries and benefits ....................... (864) (90)
Accrued expenses .................................... (147) 433
Customer deposits ................................... (738) (1,015)
Deferred service revenue ............................ (583) 1,026
Other long-term liabilities ......................... 582 530
------- -------
Net cash provided by (used in) operating activities (6,722) 3,304
------- -------
Cash flows from investing activities:
Capital expenditures ......................................... (867) (868)
Capitalization of software costs ............................. (234) (411)
------- -------
Net cash used in investing activities ............. (1,101) (1,279)
------- -------
Cash flows from financing activities:
Net borrowings (payments) under line-of-credit agreements .... 4,588 (8,346)
Payments of long-term debt ................................... (38) (34)
Proceeds from the exercise of stock options .................. 159 1,403
Tax benefit of stock option exercises ........................ 169 --
Cash dividend in lieu of fractional shares on stock split .... (4) --
------- -------
Net cash provided by (used in) financing activities 4,874 (6,977)
------- -------
Effect of exchange rate changes on cash and cash equivalents ..... 35 (699)
------- -------
Net decrease in cash and cash equivalents ........................ (2,914) (5,651)
Cash and cash equivalents at beginning of period ................. 4,982 8,696
------- -------
Cash and cash equivalents at end of period ....................... $ 2,068 $ 3,045
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ..................................................... $ 230 $ 171
Income taxes, net of refunds ................................. 548 672
See notes to unaudited interim consolidated financial statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited interim consolidated financial statements have
been prepared by PAR Technology Corporation (the "Company" or "PAR") in
accordance with U.S. generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Regulation
S-X pertaining to interim financial statements. Accordingly, these interim
financial statements do not include all information and footnotes required
by U.S. generally accepted accounting principles for complete financial
statements. In the opinion of the Company such unaudited statements include
all adjustments (which comprise only normal recurring accruals) necessary
for a fair presentation of the results for such periods. The results of
operations for the three and six months ended June 30, 2006 are not
necessarily indicative of the results of operations to be expected for any
future period. The consolidated financial statements and notes thereto
should be read in conjunction with the audited consolidated financial
statements and notes for the year ended December 31, 2005 included in the
Company's December 31, 2005 Annual Report to the Securities and Exchange
Commission on Form 10-K.
The preparation of consolidated financial statements requires management of
the Company to make a number of estimates and assumptions relating to the
reported amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the period.
Significant items subject to such estimates and assumptions include: the
carrying amount of property, plant and equipment, identifiable intangible
assets and goodwill, warranty reserve, valuation allowances for
receivables, inventories and deferred income tax assets. Actual results
could differ from those estimates.
2. On October 4, 2005, the Company and its wholly-owned Canadian subsidiary,
PixelPoint, ULC (the "Canadian Subsidiary"), completed their acquisition of
PixelPoint Technologies, Inc. ("PixelPoint") pursuant to which the Canadian
Subsidiary acquired all of the stock of PixelPoint. The purchase price was
$7.5 million and consisted of $542,000 in Company stock (27,210 shares of
PAR Technology Corporation common stock issued out of treasury) a
promissory note for $671,000 and the remainder in cash. The Company also
incurred $344,000 in direct acquisition costs relating to this purchase.
The purchase price is also subject to price contingencies based upon future
revenue performance against certain established targets. Based in suburban
Toronto, Ontario, PixelPoint Technologies, Inc. is a premier supplier to
the hospitality industry with over 5,000 installations in full-service
restaurants around the globe.
On December 6, 2005, the Company also acquired C(3)I Associates ("C(3)I"),
a Government technology services business. The Company paid $589,000 in
cash and assumed certain liabilities.
On an unaudited proforma basis, assuming the completed acquisitions had
occurred as of the beginning of the period presented, the consolidated
results of the Company would have been as follows (in thousands, except per
share amounts):
For the three months For the six months
ended June 30, 2005 ended June 30, 2005
------------------- -------------------
Net revenues $ 52,948 $ 103,268
Net income $ 2,506 $ 3,899
Earnings per share:
Basic $ .18 $ .29
Diluted $ .17 $ .27
The unaudited proforma financial information presented above gives effect
to purchase accounting adjustments which have resulted or are expected to
result from the acquisition. This proforma information is not necessarily
indicative of the results that would actually have been obtained had the
companies been combined for the period presented.
3. Inventories are primarily used in the manufacture and service of
Hospitality products. The components of inventory, net of related reserves,
consist of the following:
(in thousands)
June 30, December 31,
2006 2005
------------ -------------
Finished goods $ 9,090 $ 7,217
Work in process 1,614 1,874
Component parts 4,642 4,693
Service parts 16,853 15,778
------------ ------------
$ 32,199 $ 29,562
============ ============
At June 30, 2006 and December 31, 2005, the Company had recorded reserves
for shrinkage, excess and obsolete inventory of $4,152,000 and $4,189,000,
respectively.
4. Effective January 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123R
Share-Based Payment (SFAS 123R) on a modified prospective basis. This
standard requires the Company to measure the cost of employee services
received in exchange for equity awards based on the grant date fair value
of the awards. The cost is recognized as compensation expense over the
vesting period of the awards. Total compensation expense included in
operating expenses for the three and six months ended June 30, 2006 was
$95,000 and $138,000, respectively.
As of June 30, 2006, there were 992,431 stock options outstanding. At June
30, 2006, the unrecognized compensation expense related to non vested
option awards was $362,000 (net of estimated forfeitures). There were no
options granted or forfeited during the first six months of 2006. Option
grants issued prior to January 1, 2006 have been valued using a
Black-Scholes option valuation model.
Prior to adopting SFAS 123R on January 1, 2006, the Company's equity based
employee compensation awards were accounted for under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. For the three and six months
ended June 30, 2005, no equity option based employee compensation cost is
reflected in net income, as all options granted under the Company's stock
option plans had an exercise price equal to the underlying common stock
price on the date of grant. The following table illustrates the effect on
net income and earnings per share as if the Company had applied the fair
value recognition provisions of SFAS 123R to equity based employee
compensation (in thousands, except per share data):
For the three months For the six months
ended June 30, ended June 30,
2005 2005
------------ ------------
Net income $ 2,351 $ 3,657
Compensation expense, net of tax (103) (179)
------------ -----------
Proforma net income $ 2,248 $ 3,478
============ ===========
Earnings per share:
As reported -- Basic $ .17 $ .27
-- Diluted $ .16 $ .25
Proforma -- Basic $ .16 $ .26
-- Diluted $ .15 $ .24
In 2005, the Company's 1995 Stock Option plan expired. The 2005 Equity
Incentive Plan was approved by the shareholders at the Company's 2006
Annual Meeting. The Company has reserved 1,000,000 shares under its 2005
Equity Incentive Plan. Stock options under this Plan may be incentive stock
options or nonqualified stock options. The Plan also provides for
restricted stock grants. To date, there have been no grants under this
Plan. Stock options are nontransferable other than upon death. Option
grants generally vest over a three to five year period after the grant and
typically expire ten years after the date of the grant.
Weighted Aggregate
Average Intrinsic
No. of Shares Exercise Value
(in thousands) Price (in thousands)
-------------- -------- -------------
Outstanding at December 31, 2005 ........... 1,037 $ 4.03 $15,008
=======
Granted ................................ -- --
Exercised .............................. (45) 3.57 $ 661
Forfeited .............................. -- --
------- -------
Outstanding at June 30, 2006 ............... 992 $ 4.05 $ 9,041
======= ======== =======
Vested and expected to vest at June 30, 2006 986 $ 3.97 $ 8,076
======= ======== =======
Total shares exercisable as of June 30, 2006 699 $ 3.06 $ 6,785
======= ======== =======
Stock options outstanding at June 30, 2006 are summarized as follows:
Number
Range of Outstanding Weighted Average Weighted Average
Exercise Prices (in thousands) Remaining Life Exercise Price
--------------- ------------ -------------- --------------
$1.25 - $4.00 626 4.5 Years $ 2.32
$4.01 - $7.25 296 8.2 Years $ 5.94
$11.40 70 8.8 Years $ 11.40
-------------------- ------- ------------ ---------
$1.25 - $11.40 992 5.9 Years $ 4.05
==================== ======= ============ =========
5. Earnings per share are calculated in accordance with Statement of Financial
Accounting Standards No. 128, Earnings per Share, which specifies the
computation, presentation and disclosure requirements for earnings per
share (EPS). It requires the presentation of basic and diluted EPS. Basic
EPS excludes all dilution and is based upon the weighted average number of
common shares outstanding during the period. Diluted EPS reflects the
potential dilution that would occur if securities or other contracts to
issue common stock were exercised or converted into common stock.
The following is a reconciliation of the weighted average shares
outstanding for the basic and diluted EPS computations (in thousands,
except per share data):
For the three months
ended June 30,
--------------------
2006 2005
------- -------
Net income ............................................... $ 2,338 $ 2,351
======= =======
Basic:
Shares outstanding at beginning of period ........... 14,158 13,478
Weighted average shares issued during the period .... 15 196
------- -------
Weighted average common shares, basic ............... 14,173 13,674
======= =======
Earnings per common share, basic .................... $ .16 $ .17
======= =======
Diluted:
Weighted average common shares, basic ............... 14,173 13,674
Dilutive impact of stock options .................... 603 996
------- -------
Weighted average common shares, diluted ............. 14,776 14,670
======= =======
Earnings per common share, diluted .................. $ .16 $ .16
======= =======
For the three months
ended June 30,
--------------------
2006 2005
------- -------
Net income ............................................... $ 4,350 $ 3,657
======= =======
Basic:
Shares outstanding at beginning of period ........... 14,137 13,403
Weighted average shares issued during the period .... 25 150
------- -------
Weighted average common shares, basic ............... 14,162 13,553
======= =======
Earnings per common share, basic .................... $ .31 $ .27
======= =======
Diluted:
Weighted average common shares, basic ............... 14,162 13,553
Dilutive impact of stock options .................... 640 998
------- -------
Weighted average common shares, diluted ............. 14,802 14,551
======= =======
Earnings per common share, diluted .................. $ .29 $ .25
======= =======
6. On November 14, 2005, the Company's Board of Directors declared a 3 for 2
stock split in the form of a stock dividend that was distributed on January
6, 2006 to shareholders of record on December 12, 2005. All share and per
share data in these consolidated interim unaudited financial statements and
footnotes have been retroactively restated as if the stock split had
occurred as of the earliest period presented.
7. The Company's reportable segments are strategic business units that have
separate management teams and infrastructures that offer different products
and services.
The Company has two reportable segments, Hospitality and Government. The
Hospitality segment offers integrated solutions to the hospitality
industry. These offerings include industry leading hardware and software
applications utilized in point-of-sale, back of store and corporate office
applications as well as in the hotel/resort/spa marketplace. This segment
also offers customer support including field service, installation,
twenty-four hour telephone support and depot repair. The Government segment
develops advanced technology prototype systems primarily for the Department
of Defense and other Governmental agencies. It provides services for
operating and maintaining certain U.S. Government-owned communication and
test sites, and for planning, executing and evaluating experiments
involving new or advanced radar systems. It is also involved in developing
technology to track mobile chassis. Intersegment sales and transfers are
not significant.
Information as to the Company's segments is set forth below:
(in thousands)
For the three months For the six months
ended June 30, ended June 30,
---------------------- ----------------------
2006 2005 2006 2005
--------- --------- --------- ----------
Revenues:
Hospitality ............. $ 37,596 $ 37,346 $ 74,361 $ 71,749
Government .............. 15,747 13,874 31,579 28,228
--------- --------- --------- ---------
Total ............. $ 53,343 $ 51,220 $ 105,940 $ 99,977
========= ========= ========= =========
Operating income:
Hospitality ............. $ 2,418 $ 2,899 $ 4,434 $ 4,085
Government .............. 1,155 887 2,221 1,653
--------- --------- --------- ---------
3,573 3,786 6,655 5,738
Other income, net ............ 218 71 375 304
Interest expense ............. (167) (65) (252) (143)
--------- --------- --------- ---------
Income before provision
for income taxes ........... $ 3,624 $ 3,792 $ 6,778 $ 5,899
========= ========= ========= =========
Depreciation and amortization:
Hospitality ............. $ 797 $ 796 $ 1,696 $ 1,601
Government .............. 10 22 24 42
Other ................... 122 96 194 191
--------- --------- --------- ---------
Total ............. $ 929 $ 914 $ 1,914 $ 1,834
========= ========= ========= =========
Capital expenditures:
Hospitality ............. $ 300 $ 485 $ 688 $ 721
Government .............. -- 30 -- 30
Other ................... 119 41 179 117
--------- --------- --------- ---------
Total ............. $ 419 $ 556 $ 867 $ 868
========= ========= ========= =========
Revenues by geographic area:
United States ........... $ 45,881 $ 45,864 $ 93,171 $ 89,969
Other Countries ......... 7,462 5,356 12,769 10,008
--------- --------- --------- ---------
Total ............. $ 53,343 $ 51,220 $ 105,940 $ 99,977
========= ========= ========= =========
The following table represents identifiable assets by business segment:
(in thousands)
June 30, December 31,
2006 2005
-------- ---------
Identifiable assets:
Hospitality .......................... $114,881 $106,529
Government ........................... 11,418 9,015
Other ................................ 6,847 9,605
-------- --------
Total .................................... $133,146 $125,149
======== ========
The following table presents identifiable assets by geographic area based
on the location of the asset:
(in thousands)
June 30, December 31,
2006 2005
--------- ---------
United States .......................... $125,083 $119,627
Other Countries ........................ 8,063 5,522
-------- --------
Total ........................... $133,146 $125,149
======== ========
The following table represents Goodwill by business segment:
(in thousands)
June 30, December 31,
2006 2005
--------- ---------
Hospitality ........................ $20,318 $20,086
Government ......................... 536 536
------- -------
Total .................................. $20,854 $20,622
======= =======
Customers comprising 10% or more of the Company's total revenues are
summarized as follows:
For the three months For the six months
ended June 30, ended June 30,
------------------ ------------------
2006 2005 2006 2005
------ ------- ------- ------
Restaurant Segment:
McDonald's Corporation ....... 27% 29% 26% 29%
YUM! Brands, Inc. ............ 12% 13% 11% 12%
Government Segment:
Department of Defense ........ 30% 27% 30% 28%
All Others ........................ 31% 31% 33% 31%
--- --- --- ---
100% 100% 100% 100%
=== === === ===
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
This document contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934. Any statements in this document that do not
describe historical facts are forward-looking statements. Forward-looking
statements in this document (including forward-looking statements regarding the
continued health of the Hospitality industry, future information technology
outsourcing opportunities, an expected increase in funding by the U.S.
Government relating to the Company's logistics management contracts, the impact
of current world events on our results of operations, the effects of inflation
on our margins, and the effects of interest rate and foreign currency
fluctuations on our results of operations) are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. When we use
words such as "intend," "anticipate," "believe," "estimate," "plan," "will," or
"expect", we are making forward-looking statements. We believe that the
assumptions and expectations reflected in such forward-looking statements are
reasonable, based on information available to us on the date hereof, but we
cannot assure you that these assumptions and expectations will prove to have
been correct or that we will take any action that we presently may be planning.
We have disclosed certain important factors that could cause our actual future
results to differ materially from our current expectations, including a decline
in the volume of purchases made by one or a group of our major customers; risks
in technology development and commercialization; risks of downturns in economic
conditions generally, and in the quick-service sector of the hospitality market
specifically; risks associated with government contracts; risks associated with
competition and competitive pricing pressures; and risks related to foreign
operations. Forward-looking statements made in connection with this report are
necessarily qualified by these factors. We are not undertaking to update or
revise publicly any forward-looking statement if we obtain new information or
upon the occurrence of future events or otherwise.
Overview
PAR is a hospitality technology provider that focuses upon the design,
manufacturer and marketing of technology systems. PAR is also a provider to the
Federal Government, and its agencies, of Information Technology engineering
services and applied technology. The primary markets for the Company's products
and services are:
o restaurant, hotel/resorts, spas, entertainment, and retail industries
for the integrated technologies of transaction processing and data
capture for certain enterprises
o the U.S. military and a broad range of federal, state and local
government agencies
The Company's hospitality technology products are used in a variety of
applications by numerous segment customers. The Company faces competition in all
of its markets (restaurants, hotels, theaters, etc.) and competes primarily on
the basis of product design/features, product quality/reliability, price,
customer service and delivery capability. Recently, there has been a trend in
the hospitality marketplace for end-users to consolidate their lists of approved
vendors to companies that have global reach, can exceed quality and delivery
standards, have multiple product offerings, R&D capability, and be competitive
with their pricing. PAR's global presence as a hospitality technology provider
is an important competitive advantage as it allows the Company to provide
cutting edge technology and service products, matched with a significant
delivery capability, globally to its multinational customers such as McDonald's,
Yum! Brands and the Mandarin Oriental Hotel Group. During 2005, the Company
acquired PixelPoint Technologies of Toronto, Ontario, Canada. PixelPoint creates
software specifically for the table service (sit down) segment of the restaurant
industry and PAR views this business as a natural progression for the Company as
it strives to be the dominant supplier of hospitality technology across several
vertical markets in the hospitality segment. During the first half of 2006, the
Company competed for and won the Corner Bakery Cafe account by CBC Restaurant
Corp. CBC Restaurant selected the Company's integrated hospitality management
technology solution for its restaurant operations specifying the PixelPoint
software application suite operating on the Company's VIGO POS(TM) hardware
terminals for their nearly 100 restaurants. The Company also announced a
contract with the Hamilton Island resort in Australia for its resort software.
Additionally, the Company became an approved supplier of integrated restaurant
technology solutions to more than 11,000 Burger King restaurants around the
world.
PAR's continued strategy for their hospitality technology segment is to
provide complete, integrated technology systems and services and high level
customer service in the markets in which it competes. The Company focuses its
research and development efforts to develop leading-edge products that meet and
exceed our customers' requirements and also have high probability for broader
market appeal and success. PAR also focuses upon efficiency in our operations
and managing operating costs. This has been achieved through the investment in
modern production technologies, and efficiently administering purchasing
processes and functions.
PAR operates two wholly-owned subsidiaries in the Government business
segment, PAR Government Systems Corporation (PGSC) and Rome Research Corporation
(RRC). As a long-standing Government contractor, PAR provides software
developers to work on advanced technology systems for the U.S. Department of
Defense and other U.S. Governmental agencies. Additionally, PAR provides
information technology and communications support services to the U.S. Navy,
U.S. Air Force and U.S. Army. The Company's obligation under its contracts is to
provide labor hours to conduct research or to staff facilities with no other
deliverables or performance obligations. PAR focuses its computer-based system
design services on providing high quality technical services, ranging from
experimental studies to advanced operational systems, within a variety of areas
of research, including radar, image and signal processing, logistic management
systems, and geospatial services and products. PAR's Government engineering
service business provides management and engineering services that consist of
facilities operation and management. In December 2005, PAR acquired C(3)I
Associates, a government technology services business that focuses upon
developing technologies that enhance the command, control and communication
requirements of the U.S. military.
In 2005 PAR was awarded several new contracts with the U.S. Navy, including
one for the operation of a Navy I/T facility in Italy, several awards with the
General Services Administration and the International Broadcast Bureau. In the
first half of 2006, the Company was awarded a $3.8 million contract with the
Government's Defense Finance and Accounting Service to provide Information
Technology instruction and helpdesk services. The Company will continue to
execute its strategy of leveraging its core technical capabilities and
performance into related technical areas and an expanding customer base. The
Company will seek to accelerate this growth through strategic acquisitions of
businesses that broaden the Company's technology and/or business base.
The Company's intention is to continue to expand our customer base and
solidify our leading position in the industries to which we market by:
o Developing integrated solutions o Continuing to grow our global
presence in growth markets
o Focusing on customer needs
o Encouraging entrepreneurial corporate attitude and spirit
o Fostering a mindset of controlling cost
o Pursuing strategic acquisitions
Summary
We believe we will continue to be successful in our two core business
segments-Hospitality Technology and Government Contracting-because of our
knowledge, customer focus and industry expertise. In addition, our operations
will benefit from our efficient supply chain and economies of scale as we
leverage our suppliers and distribution operations. We remain committed to
streamlining our operations and improving our return on invested capital through
a variety of initiatives.
The following table sets forth the Company's net revenues by reportable
segment (in thousands):
For the three months For the six months
ended June 30, ended June 30,
------------------- -------------------
2006 2005 2006 2005
-------- -------- -------- --------
Revenues:
Hospitality ......... $ 37,596 $ 37,346 $ 74,361 $ 71,749
Government .......... 15,747 13,874 31,579 28,228
-------- -------- -------- --------
Total consolidated revenue $ 53,343 $ 51,220 $105,940 $ 99,977
======== ======== ======== ========
The following discussion and analysis highlights items having a significant
effect on operations during the three and six months ended June 30, 2006. This
discussion may not be indicative of future operations or earnings. It should be
read in conjunction with the audited annual consolidated financial statements
and notes thereto and other financial and statistical information included in
this report.
Results of Operations -- Three Months Ended June 30, 2006 Compared to Three
Months Ended June 30, 2005
The Company reported revenues of $53.3 million for the quarter ended June
30, 2006, an increase of 4% from the $51.2 million reported for the quarter
ended June 30, 2005. The Company's net income for the quarter ended June 30,
2006 was $2.3 million, or $.16 diluted net income per share, compared to net
income of $2.4 million and $.16 per diluted share for the same period in 2005.
Product revenues from the Company's Hospitality segment were $22.7 million
for the quarter ended June 30, 2006, a decrease of 1 % from the $22.9 million
recorded in 2005. This decrease was due to a $2.2 million decline in domestic
product sales primarily due to lower hardware sales to Hospitality customers.
This drop in domestic revenue was partially offset by a $2 million increase in
international product sales. This increase was the result of growth in sales to
the Company's restaurant customers in Europe and Asia.
Customer service revenues are also generated by the Company's Hospitality
segment. The Company's service offerings include system integration,
installation, training, twenty-four hour help desk support and various depot and
on-site service options. Customer service revenues were $14.9 million for the
quarter ended June 30, 2006, an increase of 3% from the $14.4 million for the
same period in 2005. The increase was due to a 9% or $543,000 growth in the
Company's field service and support center revenue for its restaurant customers
due to expansion of the Company's customer base. Additionally, systems
integration and software maintenance revenues from the Company's resort and spa
customers contributed to its revenue growth. This was partially offset by a
decline in installation revenue due to the timing of customer installations.
Contract revenues from the Company's Government segment were $15.7 million
for the quarter ended June 30, 2006, an increase of 14% when compared to the
$13.9 million recorded in the same period in 2005. This growth was primarily due
to a $1.1 million increase in information technology outsourcing revenue from
contracts for facility operations at critical U.S. Department of Defense
telecommunication sites across the globe. These outsourcing operations provided
by the Company directly support U.S. Navy, Air Force and Army operations as they
seek to convert their military information technology communications facilities
into contractor-run operations and to meet new requirements with contractor
support. Also contributing to the growth was applied technology contracts
involving software to assist the Air Force in battle planning.
Product margins for the quarter ended June 30, 2006 were 42.4%, an increase
of 300 basis points from the 39.4% for the quarter ended June 30, 2005. This
increase in margins was primarily attributable to higher software revenue. This
software revenue was generated from the Company's resort, spa and restaurant
customers including license sales of the Company's newly acquired PixelPoint
software.
Customer Service margins were 27.2% for the quarter ended June 30, 2006
compared to 24.2% for the same period in 2005. This increase is due to
continuous improvement in operational efficiencies in several service areas.
Contract margins were 7.8% for the quarter ended June 30, 2006 versus 6.7%
for the same period in 2005. This increase is due to an increase in margins in
the Company's applied technology contracts and higher margins on certain fixed
priced contracts in the Company's information technology outsourcing contracts.
The most significant components of contract costs in 2006 and 2005 were labor
and fringe benefits. For the quarter ended June 30, 2006, labor and fringe
benefits were $11.2 million or 77% of contract costs compared to $9.5 million or
74% of contract costs for the same period in 2005.
Selling, general and administrative expenses are virtually all related to
the Company's Hospitality segment. Selling, general and administrative expenses
for the quarter ended June 30, 2006 were $8.2 million, an increase of 12% from
the $7.3 million expense for the same period in 2005. This increase is due to a
rise in sales and marketing expenses associated with restaurant products as the
Company is planning for future growth including in international markets. Also
contributing to the increase was the Company's 2005 acquisition of PixelPoint
Technologies, Inc.
Research and development expenses relate primarily to the Company's
Hospitality segment. Research and development expenses were $2.8 million for the
quarter ended June 30, 2006, an increase of 35% from the $2.1 million recorded
in 2005. The increase was primarily attributable to the Company's continued
research and development in its hardware and software products for its
restaurant, resort and spa customers. The increase also reflects the research
and development of its recently acquired PixelPoint subsidiary.
Amortization of identifiable intangible assets was $308,000 for the second
quarter of 2006 compared to $244,000 for 2005. The increase is primarily due to
amortization relating to the acquisition of PixelPoint Technologies, Inc. on
October 4, 2005.
Other income, net, was $218,000 for the quarter ended June 30, 2006
compared to $71,000 for the same period in 2005. Other income primarily includes
rental income and foreign currency gains and losses. The increase is primarily
due to additional rental income.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. Interest expense was
$167,000 for the quarter ended June 30, 2006 as compared to $65,000 in 2005. The
Company experienced a higher borrowing interest rate and higher average
borrowings in 2006 when compared to 2005.
For the quarter ended June 30, 2006, the Company's effective income tax
rate was 35.5%, compared to 38% in 2005. The variance from the federal statutory
rate in 2006 and 2005 was primarily due to state income taxes, offset by
benefits related to export sales as well as tax benefits related to domestic
production activities.
Results of Operations -- Six Months Ended June 30, 2006 Compared to Six Months
Ended June 30, 2005
The Company reported revenues of $105.9 million for the six months ended
June 30, 2006, an increase of 6% from the $100 million reported for the six
months ended June 30, 2005. The Company's net income for the six months ended
June 30, 2006 was $4.3 million, or $.29 diluted net income per share, compared
to net income of $3.7 million and $.25 per diluted share for the same period in
2005.
Product revenues from the Company's Hospitality segment were $45.7 million
for the six months ended June 30, 2006, an increase of 4% from the $43.9 million
recorded in 2005. In the domestic restaurant market the Company experienced an
increase in the sales of its software products which was more than offset by a
decline in hardware sales resulting in an overall $577,000 decline in product
revenue. Internationally, product revenues grew $2.4 million primarily due to
hardware and software sales to restaurant customers in Europe and Asia.
Customer service revenues are also generated by the Company's Hospitality
segment. The Company's service offerings include system integration,
installation, training, twenty-four hour help desk support and various depot and
on-site service options. Customer service revenues were $28.6 million for the
six months ended June 30, 2006, an increase of 3% from the $27.8 million for the
same period in 2005. The increase was due to a 13% or $1.5 million growth in the
Company's field service and support center revenue for its restaurant customers
due to expansion of the Company's customer base. Additionally, systems
integration and software maintenance revenues from the Company's resort and spa
customers contributed to its revenue growth. This was partially offset by a
decline in installation revenue due to the timing of customer installations.
Contract revenues from the Company's Government segment were $31.6 million
for the six months ended June 30, 2006, an increase of 12% when compared to the
$28.2 million recorded in the same period in 2005. This growth was primarily due
to a $2 million increase in applied technology contracts including those
involving the development of software to assist Air Force command level
personnel in air battle planning. Also contributing to this growth was a $1.5
million increase in information technology outsourcing revenue from contracts
for facility operations at critical U.S. Department of Defense telecommunication
sites across the globe. These outsourcing operations provided by the Company
directly support U.S. Navy, Air Force and Army operations as they seek to
convert their military information technology communications facilities into
contractor-run operations and to meet new requirements with contractor support.
Product margins for the six months ended June 30, 2006 were 43.4%, an
increase of 430 basis points from the 39.1% for the six months ended June 30,
2005. This increase in margins was primarily attributable to higher software
revenue. This software revenue was generated from the Company's resort, spa and
restaurant customers including license sales of the Company's newly acquired
PixelPoint software.
Customer Service margins were 24.7% for the six months ended June 30, 2006
compared to 23.2% for the same period in 2005. The increase was due to
continuous improvements in operational effectiveness in certain service areas
offset by a decline in installation margins for restaurant customers due to the
drop in installation revenue for the period.
Contract margins were 7.4% for the six months ended June 30, 2006 versus
6.1% for the same period in 2005. The margin increase resulted from a favorable
cost share adjustment on our Logistics Management program and higher margins on
certain fixed price contracts. The most significant components of contract costs
in 2006 and 2005 were labor and fringe benefits. For the six months ended June
30, 2006, labor and fringe benefits were $22.9 million or 78% of contract costs
compared to $19.4 million or 73% of contract costs for the same period in 2005.
Selling, general and administrative expenses are virtually all related to
the Company's Hospitality segment. Selling, general and administrative expenses
for the six months ended June 30, 2006 were $16.3 million, an increase of 11%
from the $14.7 million expense for the same period in 2005. The increase was
primarily attributable to a rise in selling and marketing expenses related to
sales of the Company's traditional hardware and software products. Also
contributing to the increase was an investment in the Company's restaurant sales
force and the Company's 2005 acquisition of PixelPoint Technologies, Inc.
Research and development expenses relate primarily to the Company's
Hospitality segment. Research and development expenses were $5.7 million for the
six months ended June 30, 2006, an increase of 31% from the $4.4 million
recorded in 2005. The increase was primarily attributable to the Company's
continuing research and development related to its hardware and software
products for its restaurant, resort and spa customers also contributing to the
increase was the Company's acquisition of PixelPoint in 2005.
Amortization of identifiable intangible assets was $615,000 for the six
months ended June 30, 2006 compared to $490,000 for 2005. The increase is
primarily due to amortization relating to the acquisition of PixelPoint
Technologies, Inc. on October 4, 2005.
Other income, net, was $375,000 for the six months ended June 30, 2006
compared to $304,000 for the same period in 2005. Other income primarily
includes rental income and foreign currency gains and losses. The increase in
2006 resulted primarily from an increase in rental income.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. Interest expense was
$252,000 for the six months ended June 30, 2006 as compared to $143,000 in 2005.
The Company experienced a higher borrowing interest rate and higher average
borrowings outstanding in 2006 which compared to 2005.
For the six months ended June 30, 2006, the Company's effective income tax
rate was 35.8%, compared to 38% in 2005. The variance from the federal statutory
rate in 2006 and 2005 was primarily due to state income taxes, offset by
benefits related to export sales as well as tax benefits related to domestic
production activities.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been cash flow from
operations and lines of credit with various banks. Cash used in operations was
$6.7 million for the six months ended June 30, 2006 compared to cash provided by
operations of $3.3 million for 2005. In 2006, cash was negatively impacted by
the timing of customer receipts and by inventory purchases in anticipation of
future demand. In 2005, cash flow was generated primarily from operating profits
and the timing of vendor payments for material purchases. This was partially
offset by an increase in accounts receivable and inventory purchases.
Cash used in investing activities was $1.1 million for the six months ended
June 30, 2006 compared to $1.3 million from the same period in 2005. In 2006,
capital expenditures were $867,000 and were principally for manufacturing
equipment and information technology equipment and software for internal use.
Capitalized software costs relating to software development of Hospitality
segment products were $234,000 in 2006. In 2005, capital expenditures were
$868,000 and were primarily for manufacturing and research and development
equipment. Capitalized software costs relating to software development of
Hospitality segment products were $411,000 in 2005.
Cash provided by financing activities was $4.9 million for the six months
ended June 30, 2006 versus cash used by financing activities of $7 million in
2005. During 2006, the Company increased its short-term bank borrowings by $4.6
million and received $159,000 from the exercise of employee stock options. In
2005, the Company reduced its short-term bank borrowings by $8.3 million and
received $1.4 million from the exercise of employee stock options.
The Company has an aggregate availability of $20,000,000 in unsecured bank
lines of credit which expire in April, 2009. One line totaling $12,500,000 bears
interest at the bank borrowing rate (6.1% at June 30, 2006). The second line of
$7,500,000 allows the Company, at its option, to borrow funds at the LIBOR rate
plus the applicable interest rate spread or at the bank's prime lending rate
(6.3% at June 30, 2006).
At June 30, 2006, there was $8,088,000 outstanding under these lines and
$11,912,000 available under these lines. These facilities contain certain loan
covenants including a leverage ratio of greater than 5 to 1 and a fixed charge
coverage ratio of not greater than 4 to 1.
During fiscal year 2006, the Company anticipates that its capital
requirements will be approximately $2 million. The Company does not usually
enter into long term contracts with its major Hospitality segment customers. The
Company commits to purchasing inventory from its suppliers based on a
combination of internal forecasts and the actual orders from customers. This
process, along with good relations with suppliers, minimizes the working capital
investment required by the Company. Although the Company lists two major
customers, McDonald's and Yum! Brands, it sells to hundreds of individual
franchisees of these corporations, each of which is individually responsible for
its own debts. These broadly made sales substantially reduce the impact on the
Company's liquidity if one individual franchisee reduces the volume of its
purchases from the Company in a given year. The Company, based on internal
forecasts, believes its existing cash, line of credit facilities and its
anticipated operating cash flow will be sufficient to meet its cash requirements
through at least the next twelve months. However, the Company may be required,
or could elect, to seek additional funding prior to that time. The Company's
future capital requirements will depend on many factors including its rate of
revenue growth, the timing and extent of spending to support product development
efforts, expansion of sales and marketing, the timing of introductions of new
products and enhancements to existing products, and market acceptance of its
products. The Company cannot assure that additional equity or debt financing
will be available on acceptable terms or at all. The Company's sources of
liquidity beyond twelve months, in management's opinion, will be its cash
balances on hand at that time, funds provided by operations, funds available
through its lines of credit and the long-term credit facilities that it can
arrange.
Critical Accounting Policies
The Company's consolidated financial statements are based on the
application of U.S. generally accepted accounting principles (GAAP). GAAP
requires the use of estimates, assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets,
liabilities, revenue and expense amounts reported. The Company believes its use
of estimates and underlying accounting assumptions adhere to GAAP and are
consistently applied. Valuations based on estimates are reviewed for
reasonableness and adequacy on a consistent basis throughout the Company.
Primary areas where financial information of the Company is subject to the use
of estimates, assumptions and the application of judgment include revenue
recognition, accounts receivable, inventories, intangible assets and taxes.
Revenue Recognition Policy
The Company recognizes revenue generated by the Hospitality segment using
the guidance from SEC Staff Accounting Bulletin (SAB) No. 104, "Revenue
Recognition" and the AICPA Statement of Position (SOP) 97-2, "Software Revenue
Recognition". Product revenues consist of sales of the Company's standard
point-of-sale and property management systems of the Hospitality segment.
Product revenues include both hardware and software sales. The Company
recognizes revenue from the sale of complete restaurant systems (which primarily
includes hardware or hardware and software) upon delivery to the customer site,
or upon installation for certain software products. For restaurant systems that
are self-installed by the customer or an unrelated third party and for component
sales or supplies, the Company recognizes revenue at the time of shipment. The
Company also records service revenues relating to its standard point-of-sale and
property management systems of the Hospitality segment. Service revenues include
installation and training, support maintenance for both hardware and software
products, and field and depot repair. For elements of service revenues, such as
installation and training, revenue is based upon standard hourly/daily rates and
revenue is recognized as the services are performed. For hardware and software
support maintenance, revenue is based on established renewal rates. Service
revenues from maintenance contracts are recognized ratably over the related
contract period. For depot repair, revenue is charged based on established flat
rates for the items being repaired.
The individual product and service offerings that are included in
arrangements with our customers are identified and priced separately to the
customer based upon the stand alone price for each individual product or service
sold in the arrangement irrespective of the combination of products and services
which are included in a particular arrangement. As such, the units of accounting
are based on each individual product and service sold, and revenue is allocated
to each element based on vendor specific objective evidence (VSOE) of fair
value. VSOE of fair value for each individual product and service is based on
separate individual prices of these products and services. The sales price used
to establish fair value is the sales price of the element when it is sold
individually in a separate arrangement and not as a separate element in a
multiple element arrangement.
The Company recognizes revenue in its Government segment using the guidance
from SEC Staff Accounting Bulletin No. 104, Revenue Recognition. The Company's
contract revenues generated by the Government segment result primarily from
contract services performed for the U.S. Government under a variety of cost-plus
fixed fee, time-and-material and fixed-price contracts. Revenue on cost-plus
fixed fee contracts is recognized based on allowable costs for labor hours
delivered, as well as other allowable costs plus the applicable fee. Revenue on
time and material contracts is recognized by multiplying the number of direct
labor hours delivered in the performance of the contract by the contract billing
rates and adding other direct costs as incurred. Revenue for fixed-price
contracts is recognized as labor hours are delivered which approximates the
straight-line basis of the life of the contract. The Company's obligation under
these contracts is to provide labor hours to conduct research or to staff
facilities with no other deliverables or performance obligations. Anticipated
losses on all contracts are recorded in full when identified. Unbilled accounts
receivable are stated in the Company's consolidated financial statements at
their estimated realizable value. Contract costs, including indirect expenses,
are subject to audit and adjustment through negotiations between the Company and
U.S. Government representatives.
Accounts Receivable
Allowances for doubtful accounts are based on estimates of probable losses
related to accounts receivable balances. The establishment of allowances
requires the use of judgment and assumptions regarding probable losses on
receivable balances. We continuously monitor collections and payments from our
customers and maintain a provision for estimated credit losses based on our
historical experience and any specific customer collection issues that we have
identified. While such credit losses have historically been within our
expectations and appropriate reserves have been established, we cannot guarantee
that we will continue to experience the same credit loss rates that we have
experienced in the past. Thus, if the financial condition of our customers were
to deteriorate, our actual losses may exceed our estimates, and additional
allowances would be required.
Inventories
The Company's inventories are valued at the lower of cost or market, with
cost determined using the first-in, first-out (FIFO) method. The Company uses
certain estimates and judgments and considers several factors including product
demand and changes in technology to provide for excess and obsolescence reserves
to properly value inventory.
Capitalized Software Development Costs
The Company capitalizes certain costs related to the development of
computer software used in its Hospitality segment under the requirements of
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed. Software
development costs incurred prior to establishing technological feasibility are
charged to operations and included in research and development costs. Software
development costs incurred after establishing feasibility are capitalized and
amortized over the estimated economic life when the product is available for
general release to customers.
Goodwill
Following Financial Accounting Standards Board issuance of Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
(SFAS 142), the Company tests all goodwill for impairment annually, or more
frequently if circumstances indicate potential impairment. The Company has
elected to annually test for impairment in the fourth quarter of its fiscal
year.
Taxes
The Company has significant amounts of deferred tax assets that are
reviewed for recoverability and valued accordingly. These assets are evaluated
by using estimates of future taxable income and the impact of tax planning
strategies. Valuations related to tax accruals and assets can be impacted by
changes to tax codes, changes in statutory tax rates and the Company's estimates
of its future taxable income levels.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
INFLATION
Inflation had little effect on revenues and related costs during the first
six months of 2006. Management anticipates that margins will be maintained at
acceptable levels to minimize the affects of inflation, if any.
INTEREST RATES
As of June 30, 2006, the Company has $1.9 million in variable long-term
debt and $8.2 million in variable short-term debt. The Company believes that an
adverse change in interest rates of 100 basis points would not have a material
impact on our business, financial condition, results of operations or cash
flows.
FOREIGN CURRENCY
The Company's primary exposures relate to certain non-dollar denominated
sales and operating expenses in Europe and Asia. These primary currencies are
the Euro, the Australian dollar and the Singapore dollar. Management believes
that foreign currency fluctuations should not have a significant impact on our
business, financial conditions, results of operations or cash flows due to the
low volume of business affected by foreign currencies.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, the Company, under the
supervision and with the participation of the Company's management, including
the Company's President and Chief Executive Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of the "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) of the Company. These officers have
concluded that our disclosure controls and procedures are effective. As such,
the Company believes that all material information relating to the Company and
its consolidated subsidiaries required to be disclosed in periodic filings with
the Securities and Exchange Commission (i) is recorded, processed, summarized
and reported within the required time period, and (ii) is accumulated and
communicated to the Company's management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
(b) Changes in Internal Controls.
There was no change in the Company's internal controls over financial
reporting, as defined in Rule 13a-15(f) of the Exchange Act during the quarter
ended June 30, 2006 that has materially affected, or is reasonably likely to
materially affect, such internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1A. Risk Factors
We operate in a dynamic and rapidly changing environment that involves
numerous risks and uncertainties. The following section describes some, but not
all, of the risks and uncertainties that could have a material adverse effect on
our business, financial condition, results of operations and the market price of
our common stock, and could cause our actual results to differ materially from
those expressed or implied in our forward-looking statements.
A DECLINE IN THE VOLUME OF PURCHASES MADE BY ANY ONE OF THE COMPANY'S MAJOR
CUSTOMERS WOULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
A small number of related customers have historically accounted for a
majority of the Company's net revenues in any given fiscal period. For the
fiscal years ended December 31, 2005, 2004 and 2003, aggregate sales to our top
two Hospitality segment customers, McDonald's and Yum! Brands, amounted to 41%,
51% and 50%, respectively, of total revenues. For the six months ended June 30,
2006 and 2005, sales to those customers were 37% and 41%, respectively of total
revenues. Most of the Company's customers are not obligated to provide us with
any minimum level of future purchases or with binding forecasts of product
purchases for any future period. In addition, major customers may elect to delay
or otherwise change the timing of orders in a manner that could adversely affect
the Company's quarterly and annual results of operations. There can be no
assurance that our current customers will continue to place orders with us, or
that we will be able to obtain orders from new customers.
AN INABILITY TO PRODUCE NEW PRODUCTS THAT KEEP PACE WITH TECHNOLOGICAL
DEVELOPMENTS AND CHANGING MARKET CONDITIONS COULD RESULT IN A LOSS OF MARKET
SHARE.
The products we sell are subject to rapid and continual changes in
technology. Our competitors offer products that have an increasingly wider range
of features and capabilities. We believe that in order to compete effectively we
must provide systems incorporating new technologies at competitive prices. There
can be no assurance that we will be able to continue funding research and
development at levels sufficient to enhance our current product offerings, or
that the Company will be able to develop and introduce on a timely basis new
products that keep pace with technological developments and emerging industry
standards and address the evolving needs of customers. There also can be no
assurance that we will not experience difficulties that will result in delaying
or preventing the successful development, introduction and marketing of new
products in our existing markets, or that our new products and product
enhancements will adequately meet the requirements of the marketplace or achieve
any significant degree of market acceptance. Likewise, there can be no assurance
as to the acceptance of our products in new markets, nor can there be any
assurance as to the success of our penetration of these markets, nor to the
revenue or profit margins realized by the Company with respect to these
products. If any of our competitors were to introduce superior software products
at competitive prices, or if our software products no longer met the needs of
the marketplace due to technological developments and emerging industry
standards, our software products may no longer retain any significant market
share. If this were to occur, we could be required to record a charge against
capitalized software costs, which amount to $3.3 million as of June 30, 2006.
WE GENERATE MUCH OF OUR REVENUE FROM THE HOSPITALITY INDUSTRY AND THEREFORE ARE
SUBJECT TO DECREASED REVENUES IN THE EVENT OF A DOWNTURN EITHER IN THAT INDUSTRY
OR IN THE ECONOMY AS A WHOLE.
For the fiscal years ended December 31, 2005, 2004 and 2003, we derived
73%, 71% and 70%, respectively, of our total revenues from the Hospitality
industry, primarily the quick service restaurant marketplace. For the six months
ended June 30, 2006 and 2005, revenues from the Hospitality industry were 70%
and 72%, respectively, of total revenues. Consequently, our Hospitality
technology product sales are dependent in large part on the health of the
Hospitality industry, which in turn is dependent on the domestic and
international economy, as well as factors such as consumer buying preferences
and weather conditions. Instabilities or downturns in the Hospitality market
could disproportionately impact our revenues, as clients may either exit the
industry or delay, cancel or reduce planned expenditures for our products.
Although we believe we can assist the quick service restaurant sector of the
Hospitality industry in a competitive environment, given the cyclical nature of
that industry, there can be no assurance that our profitability and growth will
continue.
WE DERIVE A PORTION OF OUR REVENUE FROM GOVERNMENT CONTRACTS, WHICH CONTAIN
PROVISIONS UNIQUE TO PUBLIC SECTOR CUSTOMERS, INCLUDING THE GOVERNMENT'S RIGHT
TO MODIFY OR TERMINATE THESE CONTRACTS AT ANY TIME.
For the fiscal years ended December 31, 2005, 2004 and 2003, we derived
27%, 29% and 30%, respectively, of our total revenues from contracts to provide
technical services to U.S. Government agencies and defense contractors. For the
six months ended June 30, 2006 and 2005, revenues from such contracts were 30%
and 28%, respectively, of total revenues. Contracts with U.S. Government
agencies typically provide that such contracts are terminable at the convenience
of the U.S. Government. If the U.S. Government terminated a contract on this
basis, we would be entitled to receive payment for our allowable costs and, in
general, a proportionate share of our fee or profit for work actually performed.
Most U.S. Government contracts are also subject to modification or termination
in the event of changes in funding. As such, we may perform work prior to formal
authorization, or the contract prices may be adjusted for changes in scope of
work. Termination or modification of a substantial number of our U.S. Government
contracts could have a material adverse effect on our business, financial
condition and results of operations.
We perform work for various U.S. Government agencies and departments
pursuant to fixed-price, cost-plus fixed fee and time-and-material, prime
contracts and subcontracts. Approximately 64% of the revenue that we derived
from Government contracts for the year ended December 31, 2005 came from
fixed-price or time-and-material contracts. The balance of the revenue that we
derived from Government contracts in 2005 primarily came from cost-plus fixed
fee contracts. Most of our contracts are for one-year to five-year terms.
While fixed-price contracts allow us to benefit from cost savings, they
also expose us to the risk of cost overruns. If the initial estimates we use for
calculating the contract price are incorrect, we can incur losses on those
contracts. In addition, some of our governmental contracts have provisions
relating to cost controls and audit rights and, if we fail to meet the terms
specified in those contracts, then we may not realize their full benefits. Lower
earnings caused by cost overruns would have an adverse effect on our financial
results.
Under time-and-materials contracts, we are paid for labor at negotiated
hourly billing rates and for certain expenses. Under cost-plus fixed fee
contracts, we are reimbursed for allowable costs and paid a fixed fee. However,
if our costs under either of these types of contract exceed the contract ceiling
or are not allowable under the provisions of the contract or applicable
regulations, we may not be able to obtain reimbursement for all of our costs.
If we are unable to control costs incurred in performing under each type of
contract, such inability to control costs could have a material adverse effect
on our financial condition and operating results. Cost over-runs also may
adversely affect our ability to sustain existing programs and obtain future
contract awards.
WE FACE EXTENSIVE COMPETITION IN THE MARKETS IN WHICH WE OPERATE, AND OUR
FAILURE TO COMPETE EFFECTIVELY COULD RESULT IN PRICE REDUCTIONS AND/OR DECREASED
DEMAND FOR OUR PRODUCTS AND SERVICES.
There are several suppliers who offer Hospitality management systems
similar to ours. Some of these competitors are larger than PAR and have access
to substantially greater financial and other resources and, consequently, may be
able to obtain more favorable terms than we can for components and subassemblies
incorporated into these Hospitality technology products. The rapid rate of
technological change in the Hospitality industry makes it likely that we will
face competition from new products designed by companies not currently competing
with us. These new products may have features not currently available on our
Hospitality products. We believe that our competitive ability depends on our
total solution offering, our product development and systems integration
capability, our direct sales force and our customer service organization. There
is no assurance, however, that we will be able to compete effectively in the
hospitality technology market in the future.
Our Government contracting business has been focused on niche offerings,
primarily signal and image processing, information technology outsourcing and
engineering services. Many of our competitors are, or are subsidiaries of,
companies such as Lockheed-Martin, Raytheon, Northrop-Grumman, BAE, Harris and
SAIC. These companies are larger and have substantially greater financial
resources than we do. We also compete with smaller companies that target
particular segments of the Government market. These companies may be better
positioned to obtain contracts through competitive proposals. Consequently,
there are no assurances that we will continue to win Government contracts as a
prime contractor or subcontractor.
WE MAY NOT BE ABLE TO MEET THE UNIQUE OPERATIONAL, LEGAL AND FINANCIAL
CHALLENGES THAT RELATE TO OUR INTERNATIONAL OPERATIONS, WHICH MAY LIMIT THE
GROWTH OF OUR BUSINESS.
For the fiscal years ended December 31, 2005, 2004 and 2003, our net
revenues from sales outside the United States were 11%, 9% and 11%,
respectively, of the Company's total revenues. For the six months ended June 30,
2006 and 2005, sales outside the United States were 12% and 10%, respectively,
of the total revenues. We anticipate that international sales will continue to
account for a significant portion of sales. We intend to continue to expand our
operations outside the United States and to enter additional international
markets, which will require significant management attention and financial
resources. Our operating results are subject to the risks inherent in
international sales, including, but not limited to, regulatory requirements,
political and economic changes and disruptions, geopolitical disputes and war,
transportation delays, difficulties in staffing and managing foreign sales
operations, and potentially adverse tax consequences. In addition, fluctuations
in exchange rates may render our products less competitive relative to local
product offerings, or could result in foreign exchange losses, depending upon
the currency in which we sell our products. There can be no assurance that these
factors will not have a material adverse affect on our future international
sales and, consequently, on our operating results.
OUR BUSINESS DEPENDS ON A LARGE NUMBER OF HIGHLY QUALIFIED PROFESSIONAL
EMPLOYEES AND, IF WE ARE NOT ABLE TO RECRUIT AND RETAIN A SUFFICIENT NUMBER OF
THESE EMPLOYEES, WE WOULD NOT BE ABLE TO PROVIDE HIGH QUALITY SERVICES TO OUR
CURRENT AND FUTURE CUSTOMERS, WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR REVENUES
AND OPERATING RESULTS.
We actively compete for qualified professional staff. The availability or
lack thereof of qualified professional staff may affect our ability to develop
new products and to provide services and meet the needs of our customers in the
future. An inability to fulfill customer requirements due to a lack of available
qualified staff at agreed upon salary rates may adversely impact our operating
results in the future.
A SIGNIFICANT PORTION OF OUR TOTAL ASSETS CONSISTS OF GOODWILL AND IDENTIFIABLE
INTANGIBLE ASSETS, WHICH ARE SUBJECT TO A PERIODIC IMPAIRMENT ANALYSIS AND A
SIGNIFICANT IMPAIRMENT DETERMINATION IN ANY FUTURE PERIOD COULD HAVE AN ADVERSE
EFFECT ON OUR RESULTS OF OPERATIONS EVEN WITHOUT A SIGNIFICANT LOSS OF REVENUE
OR INCREASE IN CASH EXPENSES ATTRIBUTABLE TO SUCH PERIOD.
We have goodwill and identifiable intangible assets totaling approximately
$20.9 million and $9.2 million at June 30, 2006, respectively, resulting
primarily from several business acquisitions. At least annually, we evaluate
goodwill and identifiable intangible assets for impairment based on the fair
value of the operating business unit to which these assets relate. This
estimated fair value could change if we are unable to achieve operating results
at the levels that have been forecasted, the market valuation of such companies
decreases based on transactions involving similar companies, or there is a
permanent, negative change in the market demand for the services offered by the
business unit. These changes could result in an impairment of the existing
goodwill and identifiable intangible asset balances that could require a
material non-cash charge to our results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
PAR's annual meeting of shareholders was held on May 11, 2006. At the
meeting:
1) the two nominees named in PAR's proxy statement, Sangwoo Ahn and Dr.
Paul D. Nielsen, were elected to serve as directors for a three-year
term expiring in 2009;
2) the PAR Technology Corporation 2005 Equity Incentive Plan was
approved;
3) an amendment to the Corporation's Certificate of Incorporation to
increase the authorized shares of voting Common Stock from 19,000,000
to 29,000,000 was approved; and
4) the selection of KPMG LLP to service as the Corporation's independent
registered public accounting firm for the year 2006 was ratified.
The number of votes cast for, against or withheld, and the number of
abstentions and broker non-votes, where applicable, as to each such matter, are
set forth below:
- ----------------------------------------------------------------- ---------------- ------------- --------------- --------------
Against/ Broker
For Withheld Abstained Non-Votes
- ----------------------------------------------------------------- ---------------- ------------- --------------- --------------
1) Election of Directors
NOMINEE
Sangwoo Ahn 12,190,196 394,534
Dr. Paul D. Nielsen 12,274,802 309,928
- ----------------------------------------------------------------- ---------------- ------------- --------------- --------------
2) Approval of PAR Technology Corporation 2005
Equity Incentive Plan 8,445,864 2,876,497 8,837 1,253,531
- ----------------------------------------------------------------- ---------------- ------------- --------------- --------------
3) Approval of the amendment to the Corporation's
Certificate of Incorporation to increase the
authorized shares of voting Common Stock from
19,000,000 to 29,000,000 12,225,205 358,290 1,235
- ----------------------------------------------------------------- ---------------- ------------- --------------- --------------
4) Ratification of KPMG LLP as the independent 12,509,705 61,565 13,459
registered public accounting firm
- ----------------------------------------------------------------- ---------------- ------------- --------------- --------------
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
Exhibit No. Description of Instrument
----------- -------------------------
3(i) Certificate of Incorporation of PAR
Technology Corporation (as amended).
31.1 Certification of Chairman of the Board
and Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of Vice President, Chief
Financial Officer and Treasurer Pursuant
to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification of Chairman of the Board
and Chief Executive Officer and
Vice President, Chief Financial Officer
and Treasurer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
Reports on Form 8-K
On April 27, 2006, PAR Technology Corporation furnished a report on Form
8-K pursuant to Item 2.02 (Results of Operations and Financial Condition) of
that Form relating to its financial information for the quarter ended March 31,
2006, as presented in a press release of April 27, 2006 and furnished thereto as
an exhibit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAR TECHNOLOGY CORPORATION
--------------------------
(Registrant)
Date: August 9, 2006
/s/RONALD J. CASCIANO
----------------------------------------
Ronald J. Casciano
Vice President, Chief Financial Officer
and Treasurer
Exhibit Index
Sequential
Page
Exhibit Number
------- ------
3(i) Certification of Incorporation of PAR E1 - E5
Technology Corporation (as amended).
31.1 Certification of Chairman of the Board E-6
and Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of Vice President, Chief E-7
Financial Officer and Treasurer Pursuant
to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification of Chairman of the Board E-8
and Chief Executive Officer and
Vice President, Chief Financial Officer
and Treasurer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 3 (i)
CERTIFICATE OF INCORPORATION OF PAR TECHNOLOGY CORPORATION
FIRST
The name of the Corporation is PAR Technology Corporation (the "Corporation").
SECOND
The address of the registered office of the Corporation in the State of Delaware
is The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington,
County of New Castle 19801. The name of its registered agent at that address is
The Corporation Trust Company.
THIRD
The purpose of the Corporation is to engage in any lawful act or activity for
which a Corporation may be organized under the General Corporation Law of the
State of Delaware.
FOURTH
1. The total number of shares of capital stock which the Corporation shall have
authority to issue is thirty million (30,000,000) shares of stock, par value
$0.02 per share, consisting of twenty-nine million (29,000,000) shares of Common
Stock, and one million (1,000,000) shares of Preferred Stock.
2. The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized, prior to issuance of any series of
Preferred Stock, to fix by resolution or resolutions providing for the issue of
such series the number of shares included in such series and the voting powers,
designations, preferences, and relative, participating, optional and other
special rights, and the qualifications, limitations of restrictions thereof.
Pursuant to the foregoing general authority vested in the Board of Directors,
but not in limitation of the powers conferred on the Board of Directors thereby
and by Delaware Law, the Board of Directors is expressly authorized to determine
with respect to each series of Preferred Stock:
(a) the designation or designations of such series and the number of shares
(which number from time to time may be decreased by the Board of Directors, but
not below the number of such shares then outstanding, or may be increased by the
Board of Directors, but not in excess of the number of such shares then
authorized, unless otherwise provided in the resolution creating such series)
constituting such series;
(b) the rate or amount and times at which, and the preferences and
conditions under which, dividends shall be payable on shares of such series, the
status of such dividends as cumulative or noncumulative, the date or dates from
which dividends, if cumulative, shall accumulate, and the status of such shares
as participating or nonparticipating after the payment of dividends as to which
such shares are entitled to any preference;
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(c) the rights and preferences, if any, of the holders of shares of such
series upon the liquidation, dissolution or winding up of the affairs of, or
upon any distribution of the assets of, the Corporation, which amount may vary
depending upon whether such liquidation, dissolution, or winding up is voluntary
or involuntary and, if voluntary, may vary at different dates, and the status of
the shares of such series as participating or nonparticipating after the
satisfaction of any such rights and preferences;
(d) the full or limited voting rights, if any, to be provided for shares of
such series, in addition to the voting rights provided by law;
(e) the times, terms and conditions, if any, upon which shares of such
series shall be subject to redemption, including the amount the holders of
shares of such series shall be entitled to receive upon redemption (which amount
may vary under different conditions or at different redemption dates) and the
amount, terms, conditions and manner of operation of any purchase, retirement or
sinking fund to be provided for the shares of such series;
(f) the rights, if any, of the Corporation or the holders of shares of such
series to convert such shares into, or to exchange such shares for, shares of
any other class or classes or of any other series of the same class or other
securities of the Corporation, the prices or rates of conversion or exchange,
and adjustments thereto, and any other terms and conditions applicable to such
conversion or exchange;
(g) the limitations, if any, applicable while such series is outstanding on
the payment of dividends or making of distributions on, or the acquisition or
redemption of, Common Stock or any other class of shares ranking junior, either
as to dividends or upon liquidation, to the shares of such series;
(h) the conditions or restrictions, if any, upon the issue of any
additional shares (including additional shares of such series or any other
series or of any other class) ranking on a parity with or prior to the shares of
such series either as to dividends or upon liquidation; and
(i) any other relative powers, preferences and relative, participating,
optional or other special rights, and qualification, limitations or restrictions
thereof, of shares of such series;
In each case, so far as not inconsistent with the provisions of this
Certificate of Incorporation or Delaware Law. All shares of Preferred Stock
shall be identical and of equal rank except in respect to the particulars that
may be fixed by the Board of Directors as provided above, and all shares of each
series of Preferred Stock shall be identical and of equal rank except as to the
times from which cumulative dividends, if any, thereon shall be cumulative.
3. Shares of any series of Preferred Stock which have been acquired by the
Corporation, whether by purchase or redemption or by their having been converted
into or exchanged for other shares of the Corporation, shall upon their
acquisition and without any other action by the Corporation resume the status of
authorized but unissued shares of Preferred Stock and may be reissued as shares
of the series of which they were originally a part or may be issued as shares of
a new series or as shares of any other series.
4. Except as otherwise provided by Delaware Law or by any resolution adopted by
the Board of Directors fixing the powers, preferences and rights, the
qualifications, limitations or restrictions, of the Preferred Stock, the entire
voting power of the shares of the Corporation for the election of Directors and
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for all other purposes, as well as all other rights pertaining to shares of the
Corporation, shall be vested exclusively in the Common Stock. Each share of
Common Stock shall have one vote upon all matters to be voted on by the holders
of the Common Stock and share ratably, subject to the rights and preferences of
the Preferred Stock, in all assets of the Corporation in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, or upon any distribution of the assets of the Corporation.
5. Shares of capital stock of the Corporation may be issued for such
consideration, not less than the par value thereof, as shall be fixed from time
to time by the Board of Directors, and shares issued for such consideration
shall be fully paid and non-assessable.
FIFTH
The duration of the Corporation is to be perpetual.
SIXTH
Except as required by law, and subject to the rights of holders of any series of
Preferred Stock, established pursuant to Article Fourth of this Certificate of
Incorporation, a special meeting of shareholders may be called at any time by
the Board of Directors, the Chairman or the President, and shall be called only
by the Board of Directors or the Chairman or the President pursuant to a
resolution approved by a majority of the then authorized number of Directors of
the Corporation. Any such call must specify the matter or matters to be acted
upon at such meeting and only such matter or matters shall be acted upon
thereat. Any such meeting shall be at such time and at such place, within or
without the State of Delaware, as shall be set forth in the Board of Directors'
resolution calling for such meeting.
SEVENTH
Any action required or permitted to be taken by the shareholders of the
Corporation must be effected at an annual or special meeting of shareholders of
the Corporation, and no action required to be taken or that may be taken at any
annual or special meeting of shareholders of the Corporation may be taken
without a meeting except by the unanimous written consent of all shareholders
entitled to vote on such action.
EIGHTH
1. The number of directors of the Corporation shall be fixed in accordance with
the By-Laws of the Corporation, and may be increased or decreased from time to
time in such a manner as may be prescribed in the By-Laws of the Corporation.
2. Unless and except to the extent that the By-Laws of the Corporation shall so
require, the election of directors of the Corporation need not be by written
ballot.
3. The directors, other than those who may be elected by the holders of any
series of preferred stock, voting as a separate class, shall be divided into
three classes, as nearly equal in number as possible. One class of directors
shall be initially elected for a term expiring at the annual meeting of
shareholders to be held in 1993, another class shall be initially elected for a
term expiring at the annual meeting of shareholder to be held in 1994, and
another class shall be initially elected for a term expiring at the annual
E-3
meeting of shareholders to be held in 1995. Members of each class shall hold
office until their successors are elected and qualified. At each succeeding
annual meeting of the shareholders of the Corporation, the successors of the
class of directors whose term expires at that meeting shall be elected, in
accordance with the By-Laws of the Corporation, to hold office for a term
expiring at the annual meeting of shareholders held in the third year following
the year of their election.
NINTH
No contract or other transaction of the Corporation shall be void, voidable,
fraudulent or otherwise invalidated, impaired or affected, in any respect, by
reason of the fact that any one or more of the officers, directors or
shareholders of the Corporation shall individually be a party or parties thereto
or otherwise interested therein or shall be officers, directors or shareholders
or any other Corporation or corporations which shall be a party or parties
thereto or otherwise interested therein; provided that such contract or other
transaction shall be duly authorized or ratified by the Board of Directors, with
the assenting vote of a majority of the disinterested directors then present,
or, if only one such is present, with his assenting vote.
TENTH
The By-laws of the Corporation or any them may be amended or repealed, in any
respect, and new By-Laws may be adopted, at any time, either (i) by an
affirmative vote of 66 2/3% of the shareholders entitled to vote generally for
the election of directors or (ii) by an affirmative vote of a majority of the
directors present at a meeting of the Board of Directors, in each case, in
accordance with the terms of the By-Laws. Notwithstanding the foregoing and
anything contained in this Certificate of Incorporation to the contrary, Section
3 ("Special Meetings") or Section 7 ("Order of Business") of Article II
("Meeting of Stockholders") of the By-Laws Section 2, ("Number, Election and
Terms") or Section 3 ("Nominations of Directors, Elections") or Section 6
("Special Meetings") or Article III ("Directors") of the By-Laws, or the final
sentence of Article XII ("Amendments") of the By-Laws shall not be amended or
repealed and no provision inconsistent with any thereof shall be adopted without
the affirmative vote of the 66 2/3% of the shareholders entitled to vote
generally for the election of directors, voting together as a single class.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the 66 2/3% of the shareholders entitled to
vote generally for the election of directors, voting together as a single class,
shall be required to amend or repeal, or adopt any provision inconsistent with,
any provision of this Article TENTH.
ELEVENTH
1. Notwithstanding anything contained in this Certificate of Incorporation to
the contrary, Articles Sixth, Seventh, Eighth and Twelfth hereof shall not be
altered, amended or repealed and no provision inconsistent therewith shall be
adopted without the affirmative vote of the holders of at least 66 2/3% of all
of the shares of the corporation entitled to vote generally in the election of
directors, voting together as a single class. Notwithstanding anything contained
in this Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 66 2/3% of all of the shares of the corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, amend or repeal or adopt any provision
inconsistent with this paragraph (1) of Article Eleventh.
2. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in its Certificate of Incorporation, or any amendment
thereof, in the manner now or thereafter prescribed by the laws of the State of
Delaware of this Certificate of Incorporation, and all rights conferred upon the
shareholders of the corporation are granted subject to this reservation.
E-4
TWELFTH
1. A Director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
2. If, after approval of this Article by the shareholders of the Corporation,
the Delaware General Corporation Law is amended to authorize the further
elimination or limitation of the liability of directors, the liability of a
Director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
3. Any repeal or modification of this Article by the shareholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
THIRTEENTH
The name and mailing address of the incorporator is as follows:
Gregory T. Cortese
Vice President, General Counsel & Secretary
PAR Technology Corporation
8383 Seneca Turnpike
New Hartford, NY 13413
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Exhibit 31.1
PAR TECHNOLOGY CORPORATION
STATEMENT OF EXECUTIVE OFFICER
I, John W. Sammon, Jr., certify that:
1. I have reviewed this report on Form 10-Q of PAR Technology Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)), for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluations; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter and that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors:
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 9, 2006
/s/John W. Sammon, Jr.
--------------------------------
John W. Sammon, Jr.
Chairman of the Board and
Chief Executive Officer
E-6
Exhibit 31.2
PAR TECHNOLOGY CORPORATION
STATEMENT OF EXECUTIVE OFFICER
I, Ronald J. Casciano, certify that:
1. I have reviewed this report on Form 10-Q of PAR Technology Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)), for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluations; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter and that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors:
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 9, 2006
/s/Ronald J. Casciano
------------------------------
Ronald J. Casciano
Vice President, Chief Financial
Officer & Treasurer
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Exhibit 32.1
PAR TECHNOLOGY CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of PAR Technology Corporation (the
"Company") on Form 10-Q for the quarter ended June 30, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), we, John
W. Sammon, Jr. and Ronald J. Casciano, Chairman of the Board & Chief Executive
Officer and Vice President, Chief Financial Officer & Treasurer of the Company,
certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
(1) The Report fully complies with the requirement of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/John W. Sammon, Jr.
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John W. Sammon, Jr.
Chairman of the Board &
Chief Executive Officer
August 9, 2006
/s/Ronald J. Casciano
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Ronald J. Casciano
Vice President,
Chief Financial Officer & Treasurer
August 9, 2006
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