UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             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 Quarterly Period Ended June 30, 2007


                         Commission File Number: 1-15729
                                                 -------



                           PARAGON TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
             (Exact Name Of Registrant As Specified In Its Charter)




           Delaware                                          22-1643428
--------------------------------------                --------------------------
(State or Other Jurisdiction of                           (I.R.S. Employer
 Incorporation or Organization)                          Identification No.)

600 Kuebler Road, Easton, Pennsylvania                         18040
--------------------------------------                --------------------------
(Address of Principal Executive Offices)                     (Zip Code)

Registrant's Telephone Number, Including Area Code:         610-252-3205
                                                      --------------------------



Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.                                Yes |X| No |_|

Indicate by checkmark whether the Registrant is 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 |_|    Non-Accelerated Filer |X|

Indicate by checkmark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).                                 Yes |_|  No |X|

The number of shares of the Registrant's Common Stock, $1.00 par value,
outstanding as of August 6, 2007 was 2,769,192.



<PAGE>





                       [PARAGON TECHNOLOGIES, INC. LOGO]





                           Paragon Technologies, Inc.
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                        Number
                                                                                                       --------
<S>                    <C>                                                                                <C>
PART I -- FINANCIAL INFORMATION

     Item 1.           Financial Statements:
                          Balance Sheets (Unaudited).............................................          1
                          Statements of Operations (Unaudited)...................................          3
                          Statements of Cash Flows (Unaudited)...................................          4
                          Notes to Financial Statements (Unaudited)..............................          6

     Item 2.           Management's Discussion and Analysis of Financial
                          Condition and Results of Operations....................................         17

     Item 3.           Quantitative and Qualitative Disclosures About Market Risk................         26

     Item 4.           Controls and Procedures...................................................         26


PART II -- OTHER INFORMATION

     Item 1.           Legal Proceedings.........................................................         27

     Item 1A.          Risk Factors..............................................................         27

     Item 2.           Unregistered Sales of Equity Securities and Use of Proceeds...............         27

     Item 3.           Defaults Upon Senior Securities...........................................         28

     Item 4.           Submission of Matters to a Vote of Security Holders.......................         28

     Item 5.           Other Information.........................................................         28

     Item 6.           Exhibits..................................................................         29


SIGNATURES.......................................................................................         30


EXHIBIT INDEX....................................................................................         31
</TABLE>





<PAGE>





                         PART I - FINANCIAL INFORMATION
                         ------------------------------


Item 1.       Financial Statements
-------       --------------------
Paragon Technologies, Inc.
Balance Sheets (Unaudited) (Continued)
June 30, 2007 and December 31, 2006
     (In Thousands, Except Share Data)


<TABLE>
<CAPTION>
                                                                          June 30,                    December 31,
                                                                            2007                          2006
                                                                 --------------------------     ------------------------
<S>                                                                    <C>                               <C>
Assets
------

Current assets:
   Cash and cash equivalents.......................                    $   2,296                          2,447
   Short-term investments..........................                        9,255                          9,625
                                                                 --------------------------     ------------------------
       Total cash and cash equivalents and
         short-term investments....................                       11,551                         12,072
                                                                 --------------------------     ------------------------

   Receivables:
     Trade.........................................                        2,437                          2,557
     Notes and other receivables...................                          464                            428
                                                                --------------------------     ------------------------
       Total receivables...........................                        2,901                          2,985
                                                                --------------------------     ------------------------

   Costs and estimated earnings in excess
     of billings...................................                        2,287                            444

   Inventories:
     Raw materials.................................                          159                            100
     Work-in-process...............................                          193                             29
     Finished goods................................                          444                            340
                                                                 --------------------------     ------------------------
       Total inventories...........................                          796                            469
                                                                 --------------------------     ------------------------

   Deferred income tax benefits....................                          274                            288
   Prepaid expenses and other current assets.......                          304                            112
                                                                 --------------------------     ------------------------
       Total current assets........................                       18,113                         16,370
                                                                 --------------------------     ------------------------

Property, plant and equipment, at cost:
   Machinery and equipment.........................                        1,238                          1,195
   Less:  accumulated depreciation.................                          974                            919
                                                                --------------------------     ------------------------
     Net property, plant and equipment.............                          264                            276
                                                                 --------------------------     ------------------------

Deferred income tax benefits.......................                          114                             96
Other assets.......................................                           10                             10
                                                                 --------------------------     ------------------------
Total assets.......................................                    $  18,501                         16,752
                                                                 ==========================     ========================
</TABLE>


                 See accompanying notes to financial statements.



                                                                     (Continued)

                                       1
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Balance Sheets (Unaudited) (Continued)
June 30, 2007 and December 31, 2006
     (In Thousands, Except Share Data)


<TABLE>
<CAPTION>
                                                                         June 30,                    December 31,
                                                                            2007                          2006
                                                                 --------------------------     ------------------------

<S>                                                                    <C>                               <C>
Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable................................                    $   3,017                          1,177
   Customers' deposits and billings
     in excess of costs and
     estimated earnings ...........................                        2,286                          1,394
   Accrued salaries, wages, and
     commissions...................................                           81                            132
   Income taxes payable............................                            -                            541
   Accrued product warranty........................                          190                            192
   Deferred gain on sale-leaseback.................                          110                            165
   Unearned support contract revenue...............                          264                            270
   Accrued other liabilities.......................                          333                            425
                                                                 --------------------------     ------------------------
       Total current liabilities...................                        6,281                          4,296
                                                                 --------------------------     ------------------------

Long-term liabilities:
   Income taxes payable............................                          576                              -
   Deferred gain on sale-leaseback.................                            -                             28
                                                                 --------------------------     ------------------------
       Total long-term liabilities.................                          576                             28
                                                                 --------------------------     ------------------------

Commitments and contingencies

Stockholders' equity:
    Common stock, $1 par value; authorized
       20,000,000 shares; issued and
       outstanding 2,769,192 shares as
       of June 30, 2007 and 2,873,891
       shares as of December 31, 2006..............                        2,769                          2,874
     Additional paid-in capital....................                        5,525                          5,720
     Retained earnings.............................                        3,350                          3,834
                                                                 --------------------------     ------------------------
       Total stockholders' equity..................                       11,644                         12,428
                                                                 --------------------------     ------------------------

       Total liabilities and stockholders' equity..                    $  18,501                         16,752
                                                                 ==========================     ========================
</TABLE>


                 See accompanying notes to financial statements.





                                       2
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Statements of Operations (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006
     (In Thousands, Except Share and Per Share Data)


<TABLE>
<CAPTION>
                                                     Three Months Ended                               Six Months Ended
                                       --------------------------------------------  -----------------------------------------------
                                             June 30,               June 30,                June 30,                June 30,
                                               2007                   2006                    2007                    2006
                                       ---------------------- ---------------------  ----------------------- -----------------------
<S>                                      <C>                       <C>                    <C>                     <C>
Net sales....................            $      6,019                  4,823                  9,626                   9,043
Cost of sales................                   4,544                  3,315                  7,221                   6,248
                                       ---------------------- ---------------------  ----------------------- -----------------------
Gross profit on sales........                   1,475                  1,508                  2,405                   2,795
                                       ---------------------- ---------------------  ----------------------- -----------------------

Selling, general and
   administrative expenses...                   1,536                  1,429                  2,940                   2,801
Product development costs....                      18                     60                     68                     216
Interest expense.............                       -                      -                      -                       1
Interest income..............                    (117)                  (148)                  (229)                   (276)
Other income, net............                      (3)                   (47)                   (19)                    (76)
                                       ---------------------- ---------------------  ----------------------- -----------------------
                                                1,434                  1,294                  2,760                   2,666
                                       ---------------------- ---------------------  ----------------------- -----------------------

Income (loss) before
   income taxes..............                      41                    214                   (355)                    129
Income tax expense
   (benefit).................                      30                     43                    (98)                    (43)
                                       ---------------------- ---------------------  ----------------------- -----------------------
Net income (loss)............            $         11                    171                   (257)                    172
                                       ====================== =====================  ======================= =======================

Basic earnings (loss)
   per share.................            $        .00                    .05                   (.09)                    .05
                                       ====================== =====================  ======================= =======================

Diluted earnings (loss)
   per share.................            $        .00                    .05                   (.09)                    .05
                                       ====================== =====================  ======================= =======================

Weighted average
   shares outstanding........               2,780,154              3,495,389              2,811,448               3,514,088
Dilutive effect of
   stock options.............                       -                  7,190                      -                   7,569
                                       ---------------------- ---------------------  ----------------------- -----------------------
Weighted average
   shares outstanding
   assuming dilution.........               2,780,154              3,502,579              2,811,448               3,521,657
                                       ====================== =====================  ======================= =======================
</TABLE>

                 See accompanying notes to financial statements.






                                       3
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2007 and 2006
     (In Thousands, Except Share Data)


<TABLE>
<CAPTION>
                                                                                               Six Months Ended
                                                                             -----------------------------------------------------
                                                                                     June 30,                    June 30,
                                                                                       2007                        2006
                                                                             -------------------------   -------------------------
<S>                                                                                 <C>                           <C>
Cash flows from operating activities:
   Net income (loss)....................................                            $   (257)                        172

   Adjustments to reconcile net income
     (loss) to net cash provided (used) by
     operating activities:
       Depreciation of plant and equipment..............                                  55                          47
       Loss on disposition of equipment.................                                   -                           2
       Amortization of deferred gain on sale-
         leaseback......................................                                 (83)                        (83)
       Stock-based compensation.........................                                   3                          18
       Deferred tax expenses............................                                  (4)                         14
       Change in operating assets and liabilities:
           Receivables..................................                                  84                         393
           Costs and estimated earnings in
              excess of billings........................                              (1,843)                         46
           Inventories..................................                                (327)                       (233)
           Prepaid expenses and other
              current assets............................                                (192)                         84
           Accounts payable.............................                               1,840                          56
           Customers' deposits and billings
              in excess of costs and estimated
              earnings..................................                                 892                        (179)
           Accrued salaries, wages, and
              commissions...............................                                 (51)                         46
           Income taxes payable.........................                                  72                         (59)
           Accrued product warranty.....................                                  (2)                         60
           Unearned support contract revenue............                                  (6)                          2
           Accrued other liabilities....................                                 (92)                        (21)
                                                                             -------------------------   -------------------------
  Net cash provided by operating activities............                                   89                         365
                                                                             -------------------------   -------------------------

Cash flows from investing activities:
   Proceeds from sales of short-term
     investments........................................                                 870                       4,210
   Purchases of short-term investments..................                                (500)                       (500)
   Purchases of property, plant and equipment...........                                 (43)                        (97)
                                                                             -------------------------   -------------------------
   Net cash provided (used) by investing
     activities.........................................                                 327                       3,613
                                                                             -------------------------   -------------------------
</TABLE>

                 See accompanying notes to financial statements.


                                                                     (Continued)






                                       4
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Statements of Cash Flows (Unaudited) (Continued)
For the Six Months Ended June 30, 2007 and 2006
     (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                                                               Six Months Ended
                                                                             -----------------------------------------------------
                                                                                     June 30,                    June 30,
                                                                                       2007                        2006
                                                                             -------------------------   -------------------------
<S>                                                                                 <C>                           <C>

Cash flows from financing activities:
   Repurchase and retirement of
     common stock.......................................                                (567)                     (1,861)
                                                                             -------------------------   -------------------------
       Net cash used by
         financing activities...........................                                (567)                     (1,861)
                                                                             -------------------------   -------------------------

   Increase (decrease) in cash and
     cash equivalents...................................                                (151)                      2,117
   Cash and cash equivalents,
     beginning of period................................                               2,447                         687
                                                                             -------------------------   -------------------------
   Cash and cash equivalents,
     end of period......................................                            $  2,296                       2,804
                                                                             =========================   =========================

   Supplemental disclosures of cash flow information:
     Cash paid (received) during the period for:
         Interest expense...............................                            $      -                           1
                                                                             =========================   =========================
         Income taxes...................................                            $    (24)                       (371)
                                                                             =========================   =========================
</TABLE>


                 See accompanying notes to financial statements.







                                       5
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Notes To Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006


(1)  Basis of Financial Statement Presentation
     -----------------------------------------
     The accompanying unaudited financial statements have been prepared in
     accordance with the requirements for Form 10-Q and Article 10 of Regulation
     S-X and, accordingly, certain information and footnote disclosures have
     been condensed or omitted. In the opinion of the management of Paragon
     Technologies, Inc. ("Paragon" or the "Company"), the unaudited interim
     financial statements furnished reflect all adjustments and accruals that
     are necessary to present a fair statement of results for the interim
     periods. Certain prior year amounts have been reclassified to conform to
     the current year's presentation. Results for interim periods are not
     necessarily indicative of results expected for the full fiscal year.

     This quarterly report should be read in conjunction with, and is qualified
     in its entirety by reference to, the Consolidated Financial Statements of
     the Company and the related Notes thereto appearing in the Company's annual
     report on Form 10-K for the year ended December 31, 2006 as filed with the
     Securities and Exchange Commission on March 30, 2007. Refer to the
     Company's annual report on Form 10-K for the year ended December 31, 2006
     for more complete financial information.

     Use of Estimates
     ----------------
     The preparation of the financial statements, in conformity with U.S.
     generally accepted accounting principles, requires management to make
     estimates and assumptions that affect the amounts reported in the financial
     statements and accompanying notes. Actual results could differ from those
     estimates. The judgments made in assessing the appropriateness of the
     estimates and assumptions utilized by management in the preparation of the
     financial statements are based on historical and empirical data and other
     factors germane to the nature of the risk being analyzed. Materially
     different results may occur if different assumptions or conditions were to
     prevail. Estimates and assumptions are mainly utilized to establish the
     appropriateness of the inventory valuation, warranty reserve, and revenue
     recognition.


(2)  Short-Term Investments
     ----------------------
     The Company's short-term investments are comprised of debt securities, all
     classified as available for sale, that are carried at cost, which
     approximates fair value of the investments at period end. The debt
     securities include state and municipal bonds. The short-term investments
     are on deposit with a major financial institution and are supported by
     letters of credit.


(3)  Accrued Product Warranty
     ------------------------
     The Company's products are warranted against defects in materials and
     workmanship for varying periods of time depending on customer requirements
     and the type of system sold, with a typical warranty period of one year.
     The Company provides an accrual for estimated future warranty costs and
     potential product liability claims based upon a percentage of cost of
     sales, typically two percent of the cost of the system being sold, and a
     detailed review of products still in the warranty period is performed each
     quarter.

     A roll-forward of warranty activities is as follows (in thousands):

<TABLE>
<CAPTION>
                                Beginning           Additions (Reductions)                            Ending
                                 Balance                 Charged to                                   Balance
                                January 1            Costs and Expenses             Deductions        June 30
                            ------------------   ---------------------------   -------------------  ------------
<S>                              <C>                         <C>                       <C>              <C>
2007...................          $  192                      60                        (62)             190
2006...................          $  189                      91                        (31)             249
</TABLE>




                                       6
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Notes To Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006


(4)  Business Operations
     -------------------

     Company Overview
     ----------------
     Paragon, based out of Easton, Pennsylvania, provides a variety of material
     handling solutions, including systems, technologies, products, and services
     for material flow applications. The Company's capabilities include
     horizontal transportation, rapid dispensing, order fulfillment, computer
     software, sortation, integrating conveyors and conveyor systems, and
     aftermarket services. The Company is a Delaware corporation, originally
     incorporated in 1958.

     The Company (also referred to as "SI Systems") is a specialized systems
     integrator supplying SI Systems' branded automated material handling
     systems to manufacturing, assembly, order fulfillment, and distribution
     operations customers located primarily in North America, including the U.S.
     government. SI Systems is brought to market as two individual brands, SI
     Systems' Order Fulfillment Systems (hereafter referred to as "SI Systems
     OFS") and SI Systems' Production & Assembly Systems (hereafter referred to
     as "SI Systems PAS"). Each brand has its own focused sales force, utilizing
     the products and services currently available or under development within
     the Company.

     The SI Systems OFS sales force focuses on providing order fulfillment
     systems to order processing and distribution operations, which may
     incorporate the Company's proprietary DISPEN-SI-MATIC(R) and automated
     order fulfillment solutions and specialized software from the SINTHESIS(TM)
     Software Suite. SINTHESIS(TM) is comprised of eight proprietary software
     groups, with 26 extendible software modules that continually assess
     real-time needs and deploy solutions to accurately facilitate and optimize
     planning, warehousing, inventory, routing, and order fulfillment within the
     distribution process. The SI Systems PAS sales force focuses on providing
     automated material handling systems to manufacturing and assembly
     operations and the U.S. government, which may incorporate the Company's
     proprietary LO-TOW(R) and CARTRAC(R) horizontal transportation
     technologies.

     The Company's automated material handling systems are marketed, designed,
     sold, installed, and serviced by its own staff or subcontractors as
     labor-saving devices to improve productivity, quality, and reduce costs.
     The Company's integrated material handling solutions involve both standard
     and specially designed components and include integration of
     non-proprietary automated handling technologies to provide turnkey
     solutions for its customers' unique material handling needs. The Company's
     engineering staff develops and designs computer control programs required
     for the efficient operation of the systems and for optimizing
     manufacturing, assembly, and fulfillment operations.

     The Company continues to review opportunities with the goal of maximizing
     resources, increasing stockholder value, and considering strategies and
     transactions intended to provide liquidity. At this time, the Company
     believes that an increase in stockholder value will be best obtained
     through increases in the Company's internal technology base, strengthening
     the Company's sales and marketing capabilities, growth of the Company's
     continuing operations and other higher growth markets, by the enhancement
     of the Company's products with advanced proprietary software capabilities
     through research and development efforts and/or possible acquisitions,
     mergers, and joint ventures. Although the Company enters into preliminary
     discussions and non-disclosure agreements from time to time, the Company
     does not have any material definitive agreements in place. There is no
     assurance that the Company will be able to consummate any such acquisition.

                         ------------------------------


                                       7
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Notes To Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006


(4)  Business Operations (Continued)
     -------------------
     The Company's systems vary in configuration and capacity. Historically,
     system prices across the Company's product lines have ranged from $100,000
     to several million dollars per system. Systems and aftermarket sales during
     the three and six months ended June 30, 2007 and 2006 are as follows (in
     thousands):

     For the three months ended June 30, 2007 and 2006:
<TABLE>
<CAPTION>
                                                           June 30, 2007                              June 30, 2006
                                              ----------------------------------------    ---------------------------------------
                                                                        % of Total                                % of Total
                                                     Sales                 Sales               Sales                 Sales
                                              -------------------    -----------------    -----------------    ------------------
     <S>                                          <C>                      <C>               <C>                    <C>
     Systems sales......................          $  5,061                  84.1%            $  4,140                85.8%
     Aftermarket sales..................               958                  15.9%                 683                14.2%
                                              -------------------    -----------------    -----------------    ------------------
        Total sales.....................          $  6,019                 100.0%            $  4,823               100.0%
                                              ===================    =================    =================    ==================
</TABLE>

     For the six months ended June 30, 2007 and 2006:
<TABLE>
<CAPTION>
                                                           June 30, 2007                              June 30, 2006
                                              ----------------------------------------    ---------------------------------------
                                                                        % of Total                                % of Total
                                                     Sales                 Sales               Sales                 Sales
                                              -------------------    -----------------    -----------------    ------------------
     <S>                                          <C>                      <C>               <C>                    <C>
     Systems sales......................          $  7,922                  82.3%            $  7,431                82.2%
     Aftermarket sales..................             1,704                  17.7%               1,612                17.8%
                                              -------------------    -----------------    -----------------    ------------------
       Total sales......................          $  9,626                 100.0%            $  9,043               100.0%
                                              ===================    =================    =================    ==================
</TABLE>

     The Company's products are sold worldwide through its own sales personnel.
     Domestic and international sales during the three and six months ended June
     30, 2007 and 2006 are as follows (in thousands):

     For the three months ended June 30, 2007 and 2006:
<TABLE>
<CAPTION>
                                                           June 30, 2007                              June 30, 2006
                                              ----------------------------------------    ---------------------------------------
                                                                        % of Total                                % of Total
                                                     Sales                 Sales               Sales                 Sales
                                              -------------------    -----------------    -----------------    ------------------
     <S>                                          <C>                      <C>               <C>                    <C>
     Domestic sales.....................          $  5,889                  97.8%            $  4,712                97.7%
     International sales................               130                   2.2%                 111                 2.3%
                                              -------------------    -----------------    -----------------    ------------------
        Total sales.....................          $  6,019                 100.0%            $  4,823               100.0%
                                              ===================    =================    =================    ==================
</TABLE>
     For the six months ended June 30, 2007 and 2006:

<TABLE>
<CAPTION>
                                                           June 30, 2007                              June 30, 2006
                                              ----------------------------------------    ---------------------------------------
                                                                        % of Total                                % of Total
                                                     Sales                 Sales               Sales                 Sales
                                              -------------------    -----------------    -----------------    ------------------
     <S>                                          <C>                      <C>               <C>                    <C>
     Domestic sales.....................          $  8,945                  92.9%            $  8,901                98.4%
     International sales................               681                   7.1%                 142                 1.6%
                                               -------------------    -----------------    -----------------    ------------------
        Total sales.....................          $  9,626                 100.0%            $  9,043               100.0%
                                               ===================    =================    =================    ==================
</TABLE>


                                       8
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Notes To Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006


(4)  Business Operations (Continued)
     -------------------
     Sales from external customers for each of the Company's products during the
     three and six months ended June 30, 2007 and 2006 are as follows (in
     thousands):

     For the three months ended June 30, 2007 and 2006:

<TABLE>
<CAPTION>
                                                           June 30, 2007                              June 30, 2006
                                              ----------------------------------------    ---------------------------------------
                                                                        % of Total                                % of Total
                                                     Sales                 Sales               Sales                 Sales
                                              -------------------    -----------------    -----------------    ------------------
     <S>                                          <C>                      <C>               <C>                    <C>
     LO-TOW(R)  sales...................          $  2,129                  35.4%            $  1,225                25.4%
     CARTRAC(R) sales...................                 -                    -                   718                14.9%
     DISPEN-SI-MATIC(TM),
        SINTHESIS(TM), and
        related order fulfillment
        sales...........................             2,931                  48.7%               2,197                45.5%
     Other sales........................                 1                    -                     -                  -
     Aftermarket sales..................               958                  15.9%                 683                14.2%
                                              -------------------    -----------------    -----------------    ------------------
        Total sales.....................          $  6,019                 100.0%            $  4,823               100.0%
                                              ===================    =================    =================    ==================
</TABLE>

     For the six months ended June 30, 2007 and 2006:

<TABLE>
<CAPTION>
                                                           June 30, 2007                              June 30, 2006
                                              ----------------------------------------    ---------------------------------------
                                                                        % of Total                                % of Total
                                                     Sales                 Sales               Sales                 Sales
                                              -------------------    -----------------    -----------------    ------------------
     <S>                                          <C>                      <C>               <C>                    <C>
     LO-TOW(R)  sales...................          $  3,407                  35.4%            $  2,571                28.4%
     CARTRAC(R) sales...................                54                    .5%                 912                10.1%
     DISPEN-SI-MATIC(TM),
        SINTHESIS(TM), and
        related order fulfillment
        sales...........................             4,427                  46.0%               3,948                43.7%
     Other sales........................                34                    .4%                   -                  -
     Aftermarket sales..................             1,704                  17.7%               1,612                17.8%
                                              -------------------    -----------------    -----------------    ------------------
        Total sales.....................          $  9,626                 100.0%            $  9,043               100.0%
                                              ===================    =================    =================    ==================
</TABLE>


     All of the Company's sales originate in the United States, and there are no
     long-lived assets existing outside the United States.

     The Company's backlog of orders at June 30, 2007 and June 30, 2006 were
     $10,730,000 and $8,292,000, respectively.

     The Company's business is largely dependent upon a limited number of large
     contracts with a limited number of customers. This dependence can cause
     unexpected fluctuations in sales volume. Various external factors affect
     the customers' decision-making process on expanding or upgrading their
     current production or distribution sites. The customers' timing and
     placement of new orders is often affected by factors such as the current
     economy, current interest rates, and future expectations. The Company
     believes that its business is not subject to seasonality, although the rate
     of new orders can vary substantially from month to month. Since the Company
     recognizes sales on a percentage of completion basis for its systems
     contracts, fluctuations in the Company's sales and earnings occur with
     increases or decreases in major installations.


                                       9
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Notes To Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006


(5)  Recently Issued Accounting Pronouncements
     -----------------------------------------
     In June 2006, the Financial Accounting Standards Board issued
     Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income
     Taxes--an interpretation of FASB Statement No. 109, Accounting for Income
     Taxes, which clarifies the accounting for uncertainty in income taxes. FIN
     48 prescribes a recognition threshold and measurement attribute for the
     financial statement recognition and measurement of a tax position taken or
     expected to be taken in a tax return. The Interpretation requires that the
     Company recognize in the financial statements, the impact of a tax
     position, if that position is more likely than not of being sustained on
     audit, based on the technical merits of the position. FIN 48 also provides
     guidance on derecognition, classification, interest and penalties,
     accounting in interim periods and disclosure. The Company adopted the
     provisions of FIN 48 on January 1, 2007 as described in Note 11 of the
     Notes to Financial Statements.

     In September 2006, the Financial Accounting Standards Board issued SFAS No.
     157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 defines fair
     value, establishes a market-based framework or hierarchy for measuring fair
     value, and expands disclosures about fair value measurements. SFAS No. 157
     is applicable whenever another accounting pronouncement requires or permits
     assets and liabilities to be measured at fair value. SFAS No. 157 does not
     expand or require any new fair value measures. The provisions of SFAS No.
     157 are to be applied prospectively and are effective for financial
     statements issued for fiscal years beginning after November 15, 2007. The
     Company is currently evaluating the impact, if any, the adoption of SFAS
     No. 157 will have on the Company's financial statements.


(6)  Sale-Leaseback
     --------------
     The Company's principal office is located in a 173,000 square foot,
     concrete, brick, and steel facility in Easton, Pennsylvania. In connection
     with the February 2003 sale of the Company's Easton, Pennsylvania facility,
     the Company entered into a leaseback arrangement for 25,000 square feet of
     office space for five years. The leasing agreement requires fixed monthly
     rentals of $19,345 (with annual increases of 3%). The terms of the lease
     also require the payment of a proportionate share of the facility's
     operating expenses. The leasing agreement is secured with a $200,000 letter
     of credit. The lease expires on February 21, 2008.

     In accordance with SFAS No. 13 and SFAS No. 28, the leaseback does not meet
     the criteria for classification as a capital lease; hence, it is classified
     as an operating lease. The sale-leaseback resulted in a total gain of
     $2,189,000, of which $1,363,000 was recorded as a gain in 2003. The
     seller-lessee (Company) retained more than a minor part (25,000 square
     feet) but less than substantially all of the use of the property (173,000
     square feet) through the leaseback and realized a profit on the sale in
     excess of the present value of the minimum lease payments over the lease
     term. The present value of the stream of lease payments utilizing the
     Company's incremental borrowing rate of 10.0% was $826,000. The $826,000 of
     deferred profit is amortized in equal amounts as a reduction in rent
     expense over the five-year term of the lease. During the three months ended
     June 30, 2007 and 2006, $42,000 and $41,000, respectively, of the deferred
     gain was recognized. During the six months ended June 30, 2007 and 2006,
     $83,000 and $83,000, respectively, of the deferred gain was recognized.



                                       10
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Notes To Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006


(7)  Line of Credit
     --------------
     The Company has a line of credit facility which may not exceed $5,000,000
     and is to be used primarily for working capital purposes. Interest on the
     line of credit facility is at the LIBOR Market Index Rate plus 1.4%. As of
     June 30, 2007, the Company did not have any borrowings under the line of
     credit facility; however, the leasing agreement associated with the
     Company's principal office is secured with a $200,000 letter of credit.
     Therefore, as of June 30, 2007, the amount of available line of credit was
     $4,800,000.

     The line of credit facility contains various non-financial covenants and is
     secured by all of the Company's accounts receivables and inventory. The
     Company was in compliance with all covenants as of June 30, 2007. The line
     of credit facility expires effective June 30, 2008.


(8)  Stock Repurchase Program
     ------------------------
     On August 12, 2004, the Company's Board of Directors approved a program to
     repurchase up to $1,000,000 of its outstanding common stock. The Company's
     Board of Directors amended its existing stock repurchase program on several
     occasions during 2005 and 2006 by increasing the amount it has authorized
     management to repurchase from up to $1,000,000 of the Company's common
     stock to up to $14,000,000.

     On January 7, 2007, the Company's Board of Directors amended its existing
     stock repurchase program by increasing the amount it has authorized
     management to repurchase from up to $14,000,000 of the Company's common
     stock to up to $15,000,000.

     During the three months ended June 30, 2007, the Company repurchased 43,849
     shares of common stock at a weighted average cost, including brokerage
     commissions, of $5.69 per share. During the six months ended June 30, 2007,
     the Company repurchased 99,699 shares of common stock at a weighted average
     cost, including brokerage commissions, of $5.68 per share. Cash
     expenditures for the stock repurchases during the three and six months
     ended June 30, 2007 were $249,555 and $566,732, respectively. Through June
     30, 2007, the Company repurchased 1,637,718 shares of common stock at a
     weighted average cost, including brokerage commissions, of $8.62 per share.
     Cash expenditures for the stock repurchases since the inception of the
     program were $14,116,143. As of June 30, 2007, $883,857 remained available
     for repurchases under the stock repurchase program.

     Based on market conditions and other factors, additional repurchases may be
     made from time to time, in compliance with SEC regulations, in the open
     market or through privately negotiated transactions at the discretion of
     the Company. There is no expiration date with regards to the stock
     repurchase program. The purchase price for the shares of the Company's
     common stock repurchased was reflected as a reduction to stockholders'
     equity. The Company allocates the purchase price of the repurchased shares
     as a reduction to common stock for the par value of the shares repurchased,
     with the excess of the purchase price over par value being allocated
     between additional paid-in capital and retained earnings. All shares of
     common stock that were repurchased by the Company since the inception of
     the program were subsequently retired.


                                       11
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Notes To Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006


(9)  Unearned Support Contract Revenue
     ---------------------------------
     The Company offers its Order Fulfillment customers one-year support
     contracts for an annual service fee. The support contracts cover a
     customer's single distribution center or warehouse where the Company's
     products are installed. As part of its support contracts, the Company
     provides analysis, consultation, and technical information to the
     customer's personnel on matters relating to the operation of its Order
     Fulfillment System and related equipment and/or peripherals.

     The Company records advance payments for unearned support contracts in the
     balance sheet as a current liability. Revenue on individual support
     contracts is deferred and recognized on a straight-line basis over the
     one-year term of each individual support contract.


(10) Stock-Based Compensation
     ------------------------
     Effective January 1, 2006, the Company adopted SFAS No. 123R and began
     expensing the grant-date fair value of employee stock options over the
     related requisite service period.

     The Company adopted SFAS No. 123R using the modified prospective transition
     method. Under this transition method, compensation cost associated with
     employee stock options recognized after December 31, 2005 includes
     attribution of the fair value related to the remaining unvested portion of
     stock option awards granted prior to January 1, 2006, if any, and
     attribution related to new awards granted after January 1, 2006.

     The expense associated with stock-based compensation arrangements is a
     non-cash charge. In the Statements of Cash Flows, stock-based compensation
     expense is an adjustment to reconcile net income (loss) to cash provided
     (used) by operating activities.  SFAS No. 123R requires that certain cash
     flows resulting from tax deductions in excess of compensation cost
     recognized in the financial statements be classified as financing cash
     flows. For the six months ended June 30, 2007 and for the year ended
     December 31, 2006, no excess tax benefits were generated.

     1997 Equity Compensation Plan
     The Company has a stock-based compensation program, the 1997 Equity
     Compensation Plan ("ECP"), which will expire in July 2007. The ECP provides
     for grants of stock options, restricted and nonvested stock, and stock
     appreciation rights to selected key employees, key advisors who perform
     valuable services, and directors of the Company. In addition, the ECP
     provides for grants of performance units to employees and key advisors. The
     ECP, as amended by stockholders in August 2000 and June 2001, authorizes up
     to 1,012,500 shares of common stock for issuance pursuant to the terms of
     the plan.

     Under the Company's ECP, officers, directors, and key employees have been
     granted options to purchase shares of common stock at the market price at
     the date of grant. Options vest in four equal annual installments beginning
     on the first anniversary of the date of grant; thus, at the end of four
     years, the options are fully exercisable. Vested stock option awards may be
     exercised through payment of cash, exchange of mature shares, or through a
     broker. As of June 30, 2007, 7,500 options are outstanding under the plan,
     and all options have a term of seven years.


                                       12
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Notes To Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006


(10) Stock-Based Compensation (Continued)
     ------------------------
     Stock-based compensation expense recognized during the three months ended
     June 30, 2007 and 2006 for stock-based compensation programs was $6,000 and
     $10,000, respectively. Stock-based compensation expense recognized during
     the three months ended June 30, 2007 and 2006 consisted of expensing $1,000
     and $2,000, respectively, for employee stock options, and $0 and $0,
     respectively, for directors' stock options, and $5,000 and $8,000,
     respectively, for nonvested stock.

     Stock-based compensation expense recognized during the six months ended
     June 30, 2007 and 2006 for stock-based compensation programs was $3,000 and
     $18,000, respectively. Stock-based compensation expense recognized during
     the six months ended June 30, 2007 and 2006 consisted of expensing $3,000
     and $3,000, respectively, for employee stock options, and $0 and $5,000,
     respectively, for directors' stock options, and $0 and $10,000
     respectively, for nonvested stock.

     All of the stock-based compensation expense recognized was a component of
     selling, general and administrative expenses. Income was recognized during
     the three months ended March 31, 2007 as a result of the forfeiture of
     5,000 shares of nonvested stock due to the resignation of Mr. Hoffner from
     the Company effective March 1, 2007.

     Stock Options
     A summary of stock option activity is presented below:

<TABLE>
<CAPTION>
                                                                                       Weighted
                                                                                       Average
                                                                    Weighted          Remaining
                                                                    Average           Contractual       Aggregate
                                                                    Exercise             Term           Intrinsic
                                                  Options            Price            (In Years)          Value
                                              --------------    ----------------    ---------------    -----------
<S>                                               <C>                <C>                  <C>            <C>
Outstanding at January 1, 2007...........          32,500            $  8.89
  Granted................................               -                -
  Exercised..............................               -                -
  Forfeited..............................         (25,000)              8.56
                                               -------------     ---------------
Outstanding at June 30, 2007.............           7,500            $ 10.01              5.7           $ 19,500
                                               =============     ===============

Exercisable at June 30, 2007.............           1,875            $ 10.01              5.7           $  4,875
</TABLE>

     There were no stock options granted during the six months ended June 30,
     2007.

     The compensation expense charged against income during the three months
     ended June 30, 2007 and 2006 for stock options was $1,000 and $2,000,
     respectively. The compensation expense charged against income during the
     six months ended June 30, 2007 and 2006 for stock options was $3,000 and
     $8,000, respectively. The total compensation expense of $23,000 is expected
     to be recognized on the straight-line basis over the stated vesting period
     consistent with the terms of the arrangement. As of June 30, 2007, there is
     unrecognized compensation cost of $13,000 on the stock option awards which
     will be recognized over the next 2.7 years.

     As of December 31, 2005, there were no unvested employee stock options.
     Therefore, no compensation cost related to stock options granted to
     employees prior to January 1, 2006 was recognized.


                                       13
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Notes To Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006


(10) Stock-Based Compensation (Continued)
     ------------------------

     Nonvested Stock
     The grant-date fair value of nonvested stock is determined on the date of
     grant based on the market price of the stock, and compensation cost is
     generally amortized to expense on a straight-line basis over the vesting
     period during which employees perform related services.

     On March 8, 2006, the Company issued 12,500 shares of nonvested stock to
     its executive officers. Participants are entitled to cash dividends and to
     vote their respective shares. The shares are subject to forfeiture if
     employment is terminated prior to March 8, 2010.

     On March 1, 2007, Mr. Hoffner resigned from his positions as President and
     CEO and as a director of the Company. Due to his resignation from the
     Company, Mr. Hoffner forfeited his 5,000 shares of nonvested stock.

     A summary of nonvested stock activity is presented below:

<TABLE>
<CAPTION>
                                                                   Nonvested               Grant Date
                                                                    Shares                 Fair Value
                                                               -------------------     -------------------
<S>                                                                  <C>                     <C>
Nonvested at January 1, 2007..............................           12,500                  $ 10.01
   Granted................................................                -                      -
   Vested.................................................                -                      -
   Forfeited..............................................           (5,000)                   10.01
                                                               -------------------     -------------------
Nonvested at June 30, 2007................................            7,500                  $ 10.01
                                                               ===================     ===================
</TABLE>

     The compensation expense recognized during the three months ended June 30,
     2007 and 2006 for nonvested stock awards was $5,000 and $8,000,
     respectively. The compensation expense recognized during the six months
     ended June 30, 2007 and 2006 for nonvested stock awards was $0 and $10,000,
     respectively. The total compensation cost of $75,000 is expected to be
     recognized on the straight-line basis over the four-year vesting period
     consistent with the terms of the arrangement. As of June 30, 2007, there is
     unrecognized compensation cost of $50,000 on the nonvested stock awards
     which will be recognized over the next 2.7 years.


(11) Income Taxes
     ------------

     Deferred tax assets and liabilities are recognized for the future tax
     consequences attributable to differences between the financial statement
     carrying amounts of existing assets and liabilities and their respective
     tax bases. Deferred tax assets and liabilities are measured using enacted
     tax rates expected to apply to taxable income in the years in which those
     temporary differences are expected to be recovered or settled. The effect
     on deferred tax assets and liabilities of a change in tax rates is
     recognized in income in the period that includes the enactment date.



                                       14
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Notes To Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006


(11) Income Taxes (Continued)
     ------------

     On January 1, 2007, the Company adopted the Financial Accounting Standards
     Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in
     Income Taxes - an interpretation of FASB Statement No. 109, Accounting for
     Income Taxes, which clarifies the accounting for uncertainty in income
     taxes. FIN 48 prescribes a recognition threshold and measurement attribute
     for the financial statement recognition and measurement of a tax position
     taken or expected to be taken in a tax return. The Interpretation requires
     that the Company recognize in the financial statements, the impact of a
     tax position, if that position is more likely than not of being sustained
     on audit, based on the technical merits of the position. FIN 48 also
     provides guidance on derecognition, classification, interest and penalties,
     accounting in interim periods and disclosure.

     As a result of the implementation of FIN 48, the Company recognized a
     decrease of $37,000 in the liability for unrecognized tax benefits, which
     was accounted for as an increase to the January 1, 2007 balance of retained
     earnings. As of the date of adoption and after the impact of recognizing
     the decrease in liability noted above, the Company's unrecognized tax
     benefits totaled $692,000, of which $590,000 would impact the effective tax
     rate if recognized.

     The Company recognizes interest and penalties to income tax matters in
     income tax expense. In conjunction with the adoption of FIN 48, the Company
     recognized approximately $117,000 ($80,000, net of federal benefit) for
     potential interest and penalties at January 1, 2007 which is included as a
     component of the $692,000 unrecognized tax benefit noted above. During the
     three and six months ended June 30, 2007, there was no material change in
     the unrecognized tax benefits or the amount of accrued interest and
     penalties. To the extent interest and penalties are not assessed with
     respect to uncertain tax positions, amounts accrued will be reduced and
     reflected as a reduction of the overall income tax provision.

     The Company estimates that the total unrecognized tax benefits may decrease
     by approximately $350,000 due to the expiration of statutes of limitations
     prior to June 30, 2008.

     With few exceptions, the Company is no longer subject to examination by
     major taxing authorities and jurisdictions (including U.S. Federal) for
     years prior to 2003.

     The Company recognized income tax expense of $30,000 during the three
     months ended June 30, 2007 compared to income tax expense of $43,000 during
     the three months ended June 30, 2006. Income tax expense for the three
     months ended June 30, 2007 was higher than statutory federal and state tax
     rates primarily due to an adjustment in the effective income tax rate
     expected to apply based on the projected profitability of the Company for
     2007. Income tax expense for the three months ended June 30, 2006 was lower
     than statutory federal and state tax rates primarily due to the effect of
     tax-exempt interest on certain investments on the annualized effective
     rate.

     The Company recognized an income tax benefit of $98,000 during the six
     months ended June 30, 2007 compared to an income tax benefit of $43,000
     during the six months ended June 30, 2006. The income tax benefit for the
     six months ended June 30, 2007 was lower than statutory federal and state
     tax rates primarily due to the effect of tax-exempt interest on certain
     investments on the annualized effective rate. The income tax benefit for
     the six months ended June 30, 2006 was higher than statutory federal and
     state tax rates primarily due to the reversal of accruals for the
     expiration of tax return statutes and the effect of tax-exempt interest on
     certain investments on the annualized effective rate.


                                       15
<PAGE>



Item 1.       Financial Statements (Continued)
-------       --------------------
Paragon Technologies, Inc.
Notes To Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2007 and 2006


(12) Legal Proceedings
     -----------------
     From time to time, the Company is involved in various claims and legal
     actions arising in the ordinary course of business. Although the amount of
     any liability that could arise with respect to currently pending actions
     cannot be accurately predicted, in the opinion of management, the ultimate
     disposition of these matters will not have a material adverse effect on the
     Company's financial position, results of operations, or liquidity.


(13) Subsequent Events
     -----------------
     On August 1, 2007, Mr. L. Jack Bradt retired as a director of the Company.

     At the Annual Meeting of Stockholders held on August 1, 2007, the
     stockholders did not approve the Company's 2007 Equity Incentive Plan.




















                                       16
<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and
-------       ---------------------------------------------------------------
              Results of Operations
              ---------------------


     The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the unaudited
financial statements and related notes thereto included in this Quarterly Report
on Form 10-Q for the period ended June 30, 2007, and the cautionary statements
and consolidated financial statements and related notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2006. The
discussion and analysis contains "forward-looking statements" based on
management's current expectations, assumptions, estimates, and projections.
These forward-looking statements involve risks and uncertainties. The Company's
actual results could differ materially from those included in these
"forward-looking statements" as a result of risks and uncertainties identified
in connection with those forward-looking statements, including those factors
identified herein, and in the Company's other publicly filed reports.


                         ------------------------------


Business Overview
-----------------
     Paragon Technologies, Inc. provides a variety of material handling
solutions, including systems, technologies, products, and services for material
flow applications. Founded in 1958, the Company's material handling solutions
are based on core technologies in horizontal transportation and order
fulfillment and are aimed at improving productivity for manufacturing, assembly,
and distribution center operations.


                         ------------------------------


Key Performance Metrics Relevant to the Company
-----------------------------------------------

     Capacity Utilization
     --------------------
     Capacity Utilization, as documented in the Federal Reserve Statistical
Release(1), is a key economic indicator that the Company follows as a barometer
that may lead to capital spending for material handling systems. Capacity
Utilization attempts to measure what percent of available capacity is actually
being utilized. Management believes that when Capacity Utilization rises and
falls, the Company may see a corresponding change in the rate of new orders, and
therefore, a corresponding change in backlog and sales may also occur. The
backlog of orders represents the uncompleted portion of systems contracts along
with the value of parts and services from customer purchase orders related to
goods that have not been shipped or services that have not been rendered.
Backlog is generally indicative of customer demand for the Company's products.
As the demand for the Company's products increases, the backlog of orders, the
rate of new orders, and sales also typically increases. The following table
depicts the Company's backlog, orders, sales, and Capacity Utilization for the
six months ended June 30, 2007, and for the years ended December 31, 2006, 2005,
2004, 2003, and 2002:

<TABLE>
<CAPTION>
                                                  Six Months
                                                    Ended                           Year Ended December 31,
                                                   June 30,     ---------------------------------------------------------------
(Dollars in Thousands)                               2007            2006         2005        2004         2003         2002
                                                --------------  ---------------------------------------------------------------
<S>                                                <C>              <C>          <C>         <C>          <C>          <C>
Backlog of orders - Beginning............          $  5,932          6,918        5,514       4,052        4,834        7,666
   Add: orders...........................            14,424         16,802       18,080      13,164       11,301       12,074
   Less: sales...........................             9,626         17,788       16,676      11,702       12,083       14,906
                                               --------------   ---------------------------------------------------------------
Backlog of orders - Ending...............          $ 10,730          5,932        6,918       5,514        4,052        4,834
                                               ==============   ===============================================================

Capacity Utilization(1)..................             81.4%          81.7%        80.2%       78.1%        76.1%        74.8%
</TABLE>


                                       17
<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and
-------       ---------------------------------------------------------------
              Results of Operations (Continued)
              ---------------------


     Current Ratio
     -------------
     Management of the Company monitors the current ratio as a measure of
determining liquidity and believes the current ratio illustrates that the
Company's financial resources are adequate to satisfy its future cash
requirements through the next year. The following table depicts the Company's
current assets, current liabilities, and current ratio as of June 30, 2007 and
as of December 31, 2006, 2005, 2004, 2003, and 2002:

<TABLE>
<CAPTION>
                                                                                      As of December 31,
                                      As of June 30,          ---------------------------------------------------------------
(Dollars in Thousands)                    2007                    2006         2005         2004         2003         2002
                                 -------------------------    -----------  -----------   ----------   ----------   ----------
<S>                                    <C>                       <C>          <C>          <C>          <C>          <C>
Current assets...............          $  18,113                 16,370       22,134       14,249       14,720       15,444
                                 -------------------------    -----------  -----------   ----------   ----------   ----------
Current liabilities..........          $   6,281                  4,296        5,337        7,355        9,583        9,416

Current ratio................               2.88                   3.81         4.15         1.94         1.54         1.64
</TABLE>

     Debt to Equity Ratio
     --------------------
     With an emphasis on generating cash flows to eliminate the Company's senior
and subordinated debt, the Company eliminated its financial leverage in 2003 as
evidenced by its debt to equity ratio, which is the ratio of total debt to
stockholders' equity. Management believes the absence of debt provides greater
protection for its stockholders and enhances the Company's ability to obtain
additional financing, if required. The following table illustrates the
calculation of the debt to equity ratio as of June 30, 2007 and as of December
31, 2006, 2005, 2004, 2003, and 2002 and also includes the number of shares
outstanding at the end of each fiscal period:

<TABLE>
<CAPTION>
                                                                                 As of December 31,
                                   As of June 30,       -------------------------------------------------------------
(Dollars in Thousands)                 2007                2006         2005         2004         2003         2002
                                 ------------------     ---------    ---------    ---------    ---------    ---------
<S>                                  <C>                <C>          <C>          <C>          <C>          <C>
Current installments of
  long-term debt.............        $       -                  -            -            -            -        1,437
Long-term debt...............                -                  -            -            -            -        7,263
                                 ------------------     ---------    ---------    ---------    ---------    ----------
Total debt...................                -                  -            -            -            -        8,700
                                 ------------------     ---------    ---------    ---------    ---------    ---------
Total stockholders'
  equity (1).................        $  11,644             12,428       17,066       23,308       22,061       17,885
                                 ==================     =========    =========    =========    =========    =========

Debt to equity ratio.........                -                   -            -            -            -         .49

Number of shares
  outstanding at the
  end of the fiscal
  period.....................        2,769,192          2,873,891    3,539,019    4,265,310    4,277,595    4,256,098

<FN>
(1)  During the six months ended June 30, 2007, the Company repurchased 99,699
     shares of common stock at a weighted average cost, including brokerage
     commissions, of $5.68 per share. Cash expenditures for the stock
     repurchases during the six months ended June 30, 2007 were $566,732.

     During the year ended December 31, 2006, the Company repurchased 679,219
     shares of common stock at a weighted average cost, including brokerage
     commissions, of $7.57 per share. Cash expenditures for the stock
     repurchases during the year ended December 31, 2006 were $5,142,898.

     During the year ended December 31, 2005, the Company repurchased 824,100
     shares of common stock at a weighted average cost, including brokerage
     commissions, of $9.81 per share. Cash expenditures for the stock
     repurchases during the year ended December 31, 2005 were $8,080,882.
</FN>
</TABLE>

                                       18
<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and
-------       ---------------------------------------------------------------
              Results of Operations (Continued)
              ---------------------


     Debt to Equity Ratio (Continued)
     --------------------
     During the year ended December 31, 2004, the Company repurchased 34,700
     shares of common stock at a weighted average cost, including brokerage
     commissions, of $9.38 per share. Cash expenditures for the stock
     repurchases during the year ended December 31, 2004 were $325,631.

     See Stock Repurchase Program in Note 8 of the Notes to Financial Statements
     regarding the repurchase of shares of the Company's common stock.

                         ------------------------------

Critical Accounting Policies and Estimates
------------------------------------------
     The discussion and analysis of the Company's financial condition and
results of operations are based upon the Company's financial statements, which
have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires the Company
to make estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and other financial information, including
the related disclosure of commitments and contingencies at the date of the
Company's financial statements. Actual results may, under different assumptions
and conditions, differ significantly from the Company's estimates.

     The Company believes that its accounting policies related to revenue
recognition on system sales, warranty, and inventories are its "critical
accounting policies." These policies have been reviewed with the Audit Committee
of the Board of Directors and are discussed in greater detail below.

     Revenue Recognition on Systems Sales
     ------------------------------------
     Revenues on systems contracts, accounted for in accordance with SOP 81-1 of
the American Institute of Certified Public Accountants, are recorded on the
basis of the Company's estimates of the percentage of completion of individual
contracts. Gross margin is recognized on the basis of the ratio of aggregate
costs incurred to date to the most recent estimate of total costs. As contracts
may extend over one or more years, revisions in cost and profit estimates during
the course of the work are reflected in the accounting periods in which the
facts requiring revisions become known. At the time a loss on a contract becomes
known, the entire amount of the estimated ultimate loss is accrued. As of June
30, 2007, there are no contracts that are anticipated to result in a loss.

     The Company believes that it has the ability to reasonably estimate the
total costs and applicable gross profit margins at the inception of the contract
for all of its systems contracts. However, where cost estimates change, there
could be a significant impact on the amount of revenue recognized. The Company's
failure to estimate accurately can result in cost overruns which will result in
the loss of profits if the Company determines that it has significantly
underestimated the costs involved in completing contracts. The Company has not
had any significant cost overruns resulting in loss of profits during the six
months ended June 30, 2007.

     Accrued Product Warranty
     ------------------------
     The Company's products are warranted against defects in materials and
workmanship for varying periods of time depending on customer requirements and
the type of system sold, with a typical warranty period of one year. The Company
provides an accrual for estimated future warranty costs and potential product
liability claims based upon a percentage of cost of sales, typically two percent
of the cost of the system being sold, and a detailed review of products still in
the warranty period. Historically, the level of warranty reserve has been
appropriate based on management's assessment of estimated future warranty
claims. However, if unanticipated warranty issues arise in the future, there
could be a significant impact on the recorded warranty reserve. The warranty
reserve as of June 30, 2007 was $190,000.


                                       19
<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and
-------       ---------------------------------------------------------------
              Results of Operations (Continued)
              ---------------------


     Inventories
     -----------
     Inventories are valued at the lower of average cost or market. The Company
provides an inventory reserve determined by a specific identification of
individual slow moving items and other inventory items based on historical
experience. The reserve is considered to be a write-down of inventory to a new
cost basis. Upon disposal of inventory, the new cost basis is removed from the
accounts.

                         ------------------------------

(a) Results of Operations - Six Months Ended June 30, 2007 Compared to the Six
    --------------------------------------------------------------------------
    Months Ended June 30, 2006
    --------------------------

Earnings Summary
----------------
     The Company had a net loss of $257,000 (or $0.09 basic loss per share) for
the six months ended June 30, 2007, compared to net income of $172,000 (or $0.05
basic earnings per share) for the six months ended June 30, 2006. The decrease
in net income was primarily due to:
     o  a decrease during the first half of 2007 in gross profit of $390,000
        as described below;
     o  an increase in selling, general and administrative expenses of $139,000
        as described below;
     o  a decrease of $47,000 in interest income attributable to the lower level
        of funds available for investment as the Company liquidated a portion
        of its short-term investments to fund the Company's stock repurchase
        activities; and
     o  a decrease of $57,000 in other income, net attributable to a decrease
        in royalty income from a license agreement related to material handling
        equipment sales.

     Partially offsetting the above decrease in net income was a decrease in
product development costs of $148,000 as described below.

Net Sales and Gross Profit on Sales
-----------------------------------

<TABLE>
<CAPTION>
                                                                     2007                      2006
                                                            -----------------------   -----------------------
<S>                                                             <C>                          <C>
Net sales..............................................         $  9,626,000                 9,043,000
Cost of sales..........................................            7,221,000                 6,248,000
                                                            -----------------------   -----------------------
Gross profit on sales..................................         $  2,405,000                 2,795,000
                                                            =======================   =======================

Gross profit as a percentage of sales..................                25.0%                     30.9%
                                                            =======================   =======================
</TABLE>

     The increase in sales was associated with a larger amount of orders
received during the first half of 2007 when compared to the amount of orders
received during the first half of 2006. Contributing to the increase in sales
was progress made on contracts received during the first half of 2007 in
accordance with contract completion requirements.

     Gross profit, as a percentage of sales, for the six months ended June 30,
2007, when compared to the six months ended June 30, 2006, was unfavorably
impacted by 2.4% due to product mix and by 3.5% due to the reduced absorption of
overhead costs.




                                       20
<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and
-------       ---------------------------------------------------------------
              Results of Operations (Continued)
              ---------------------


(a) Results of Operations - Six Months Ended June 30, 2007 Compared to the Six
    --------------------------------------------------------------------------
    Months Ended June 30, 2006 (Continued)
    --------------------------

Selling, General and Administrative Expenses
--------------------------------------------
     Selling, general and administrative expenses of $2,940,000 were higher by
$139,000 for the six months ended June 30, 2007 than for the six months ended
June 30, 2006. The increase was attributable to the addition of resources aimed
at expanding the customer base and costs associated with sales efforts in
response to quoting and sales activities totaling $257,000, and an increase of
$21,000 in professional fees and consulting services. Partially offsetting the
aforementioned unfavorable variance was a decrease of $128,000 in marketing
expenses primarily associated with product promotion and trade shows.

Product Development Costs
-------------------------
     Product development costs, including patent expense, of $68,000 were lower
by $148,000 for the six months ended June 30, 2007 than for the six months ended
June 30, 2006. Development programs in the six months ended June 30, 2007 were
primarily aimed at improvements to the Company's Order Fulfillment systems
technologies. Order Fulfillment development efforts during the six months ended
June 30, 2007 included voice-directed replenishment and DISPEN-SI-MATIC(R)
software enhancements aimed at promoting workplace efficiencies for the
Company's customers.

     Development programs in the six months ended June 30, 2006 were primarily
aimed at improvements to the Company's Order Fulfillment and Production &
Assembly systems technologies. Development efforts during the six months ended
June 30, 2006 included DISPEN-SI-MATIC(R) hardware and software enhancements
aimed at promoting workplace efficiencies for the Company's customers and
LO-TOW(R) product enhancements.

Interest Income
---------------
     Interest income of $229,000 was lower by $47,000 for the six months ended
June 30, 2007 than for the six months ended June 30, 2006. The decrease in
interest income was attributable to the lower level of funds available for
investment, as the Company liquidated a portion of its short-term investments to
fund the Company's stock repurchase activities.

Other Income, Net
-----------------
     The unfavorable variance of $57,000 in other income, net for the six months
ended June 30, 2007 as compared to the six months ended June 30, 2006 was
primarily attributable to a decrease in royalty income from a license agreement
related to material handling equipment sales.

Income Tax Expense (Benefit)
---------------------------
     The Company recognized an income tax benefit of $98,000 during the six
months ended June 30, 2007 compared to an income tax benefit of $43,000 during
the six months ended June 30, 2006. The income tax benefit for the six months
ended June 30, 2007 was lower than statutory federal and state tax rates
primarily due to the effect of tax-exempt interest on certain investments on the
annualized effective rate. The income tax benefit for the six months ended June
30, 2006 was higher than statutory federal and state tax rates primarily due to
the reversal of accruals for the expiration of tax return statutes and the
effect of tax-exempt interest on certain investments on the annualized effective
rate.



                                       21
<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and
-------       ---------------------------------------------------------------
              Results of Operations (Continued)
              ---------------------


(b) Results of Operations - Three Months Ended June 30, 2007 Compared to the
    ------------------------------------------------------------------------
    Three Months Ended June 30, 2006
    --------------------------------

Earnings Summary
----------------
     The Company had net income of $11,000 (or $0.00 basic earnings per share)
for the three months ended June 30, 2007, compared to net income of $171,000 (or
$0.05 basic earnings per share) for the three months ended June 30, 2006. The
decrease in net income was primarily due to:
     o  a decrease during the second quarter of 2007 in gross profit of
        $33,000 as described below;
     o  an increase in selling, general and administrative expenses of $107,000
        as described below;
     o  a decrease of $31,000 in interest income attributable to the lower level
        of funds available for investment as the Company liquidated a portion of
        its short-term investments to fund the Company's stock repurchase
        activities; and
     o  a decrease of $44,000 in other income, net attributable to a decrease in
        royalty income from a license agreement related to material handling
        equipment sales.

     Partially offsetting the above decrease in net income was a decrease in
product development costs of $42,000 as described below.

Net Sales and Gross Profit on Sales
-----------------------------------

<TABLE>
<CAPTION>
                                                                       2007                      2006
                                                              -----------------------   -----------------------
<S>                                                               <C>                          <C>
Net sales..............................................           $  6,019,000                 4,823,000
Cost of sales..........................................              4,544,000                 3,315,000
                                                              -----------------------   -----------------------
Gross profit on sales..................................           $  1,475,000                 1,508,000
                                                              =======================   =======================

Gross profit as a percentage of sales..................                  24.5%                     31.3%
                                                              =======================   =======================
</TABLE>

     The increase in sales was associated with a larger amount of orders
received during the first half of 2007 when compared to the amount of orders
received during the first half of 2006. Contributing to the increase in sales
was progress made on contracts received during the first half of 2007 in
accordance with contract completion requirements.

     Gross profit, as a percentage of sales, for the three months ended June 30,
2007, when compared to the three months ended June 30, 2006, was unfavorably
impacted by 4.0% due to product mix and by 2.8% due to the reduced absorption of
overhead costs.

Selling, General and Administrative Expenses
--------------------------------------------
     Selling, general and administrative expenses of $1,536,000 were higher by
$107,000 for the three months ended June 30, 2007 than for the three months
ended June 30, 2006. The increase was attributable to the addition of resources
aimed at expanding the customer base and costs associated with sales efforts in
response to quoting and sales activities totaling $124,000, and an increase of
$39,000 in professional fees and consulting services. Partially offsetting the
aforementioned unfavorable variance was a decrease of $66,000 in marketing
expenses primarily associated with product promotion and trade shows.



                                       22
<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and
-------       ---------------------------------------------------------------
              Results of Operations (Continued)
              ---------------------


(b) Results of Operations - Three Months Ended June 30, 2007 Compared to the
    ------------------------------------------------------------------------
    Three Months Ended June 30, 2006 (Continued)
    --------------------------------

Product Development Costs
-------------------------
     Product development costs, including patent expense, of $18,000 were lower
by $42,000 for the three months ended June 30, 2007 than for the three months
ended June 30, 2006. Development programs in the three months ended June 30,
2007 were primarily aimed at improvements to the Company's Order Fulfillment
systems technologies. Order Fulfillment development efforts during the three
months ended June 30, 2007 included voice-directed replenishment enhancements.

     Development programs in the three months ended June 30, 2006 were primarily
aimed at improvements to the Company's Order Fulfillment and Production &
Assembly systems technologies. Development efforts during the three months ended
June 30, 2006 included DISPEN-SI-MATIC(R) software enhancements aimed at
promoting workplace efficiencies for the Company's customers and LO-TOW(R)
product enhancements.

Interest Income
---------------
     Interest income of $117,000 was lower by $31,000 for the three months ended
June 30, 2007 than for the three months ended June 30, 2006. The decrease in
interest income was attributable to the lower level of funds available for
investment, as the Company liquidated a portion of its short-term investments to
fund the Company's stock repurchase activities.

Other Income, Net
-----------------
     The unfavorable variance of $44,000 in other income, net for the three
months ended June 30, 2007 as compared to the three months ended June 30, 2006
was primarily attributable to a decrease in royalty income from a license
agreement related to material handling equipment sales.

Income Tax Expense (Benefit)
---------------------------
     The Company recognized income tax expense of $30,000 during the three
months ended June 30, 2007 compared to income tax expense of $43,000 during the
three months ended June 30, 2006. Income tax expense for the three months ended
June 30, 2007 was higher than statutory federal and state tax rates primarily
due to an adjustment in the effective income tax rate expected to apply based on
the projected profitability of the Company for 2007. Income tax expense for the
three months ended June 30, 2006 was lower than statutory federal and state tax
rates primarily due to the effect of tax-exempt interest on certain investments
on the annualized effective rate.

                         ------------------------------

Liquidity and Capital Resources
-------------------------------
     The Company's cash and cash equivalents and short-term investments at June
30, 2007 were $11,551,000, representing 62.4% of total assets, down from
$12,072,000, or 72.1% of total assets, at December 31, 2006. The decrease was
primarily due to the repurchase and retirement of common stock totaling
$567,000.

     The Company's cash and cash equivalents and short-term investments at June
30, 2006 were $15,804,000, representing 76.2% of total assets, down from
$17,397,000, or 77.0% of total assets, at December 31, 2005. The decrease was
primarily due to the repurchase and retirement of common stock of $1,861,000,
partially offset by cash provided by operating activities totaling $365,000.

     Cash provided by operating activities totaling $365,000 during the six
months ended June 30, 2006 was primarily due to a decrease in receivables in the
amount of $393,000, primarily associated with the collection of an income tax
refund.


                                       23
<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and
-------       ---------------------------------------------------------------
              Results of Operations (Continued)
              ---------------------


Liquidity and Capital Resources (Continued)
-------------------------------

     The Company has a line of credit facility which may not exceed $5,000,000
and is to be used primarily for working capital purposes. Interest on the line
of credit facility is at the LIBOR Market Index Rate plus 1.4%. As of June 30,
2007, the Company did not have any borrowings under the line of credit facility;
however, the leasing agreement associated with the Company's principal office is
secured with a $200,000 letter of credit. Therefore, as of June 30, 2007, the
amount of available line of credit was $4,800,000.

     The line of credit facility contains various non-financial covenants and is
secured by all of the Company's accounts receivables and inventory. The Company
was in compliance with all covenants as of June 30, 2007. The line of credit
facility expires effective June 30, 2008.

     The Company anticipates that its financial resources, consisting of cash
and cash equivalents and short-term investments, cash generated from operations,
and its line of credit, will be adequate to satisfy its future cash requirements
through the next year. Sales volume, as well as cash liquidity, may experience
fluctuations due to the unpredictability of future contract sales and the
dependence upon a limited number of large contracts with a limited number of
customers.

     The Company is currently exploring various business strategies designed to
enhance the value of the Company's assets for its stockholders. The Company is
continuing to evaluate and actively explore a range of possible options,
including transactions intended to provide liquidity and maximize stockholder
value, and consideration of the acquisition of complementary assets and/or
businesses. The Company may not be able to effect any of these strategic
options.


Contractual Obligations
-----------------------
     The Company's leases 25,000 square feet in Easton, Pennsylvania for use as
its principal office. The leasing agreement requires fixed monthly rentals of
$19,345 (with annual increases of 3%). The terms of the lease also require the
payment of a proportionate share of the facility's operating expenses. The
leasing agreement is secured with a $200,000 letter of credit. The lease expires
on February 21, 2008.

     Future contractual obligations and commercial commitments at June 30, 2007
as noted above are as follows:

<TABLE>
<CAPTION>
                                                                         Payments Due by Period
                                ---------------    ----------------------------------------------------------------------
                                     Total            2007        2008        2009        2010        2011     After 2011
                                ---------------    ---------   ---------   ---------   ---------   ---------   ----------
<S>                                <C>              <C>          <C>         <C>       <C>                <C>          <C>
Contractual
obligations:
  Operating leases...........      $ 155,000        116,000      39,000           -           -           -            -
  Unrecognized
     tax benefits............        576,000        329,000      32,000      95,000     120,000           -            -
                                ---------------    ---------   ---------   ---------   ---------   ---------   ----------

  Total......................      $ 731,000        445,000      71,000      95,000     120,000           -            -
                                ===============    =========   =========   =========   =========   =========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                           Amount of Commitment
                                                                          Expiration Per Period
                                  Total Amount     -----------------------------------------------------------------------
                                   Committed          2007        2008        2009        2010        2011     After 2011
                                ---------------    ---------   ---------   ---------   ---------   ---------   ----------
<S>                                <C>                    <C>  <C>                <C>         <C>         <C>          <C>
Other commercial
commitments:
  Letters of credit..........      $ 200,000              -     200,000           -           -           -            -
                                ===============    =========   =========   =========   =========   =========   ==========
</TABLE>


                                       24
<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and
-------       ---------------------------------------------------------------
              Results of Operations (Continued)
              ---------------------


Contractual Obligations (Continued)
-----------------------
     The Company has an Executive Officer Severance Policy (the "Severance
Policy") for executive officers without an employment agreement, which applies
in the event that an executive officer is terminated by the Company for reasons
other than "cause," as such term is defined in the Severance Policy. Under the
Severance Policy, executive officers will receive a portion of their regular
straight-time pay based on their position and length of service with the
Company, medical coverage, and executive outplacement services. For further
information, please refer to the Company's disclosure regarding the "Executive
Officer Severance Policy" in Item 11 of the Company's Annual Report on Form 10-K
for the year ended December 31, 2006.

Off-Balance Sheet Arrangements
------------------------------
     As of June 30, 2007 the Company had no off-balance sheet arrangements in
the nature of guarantee contracts, retained or contingent interests in assets
transferred to unconsolidated entities (or similar arrangements serving as
credit, liquidity, or market risk support to unconsolidated entities for any
such assets), obligations (including contingent obligations) under a contract
that would be accounted for as a derivative instrument, or obligations
(including contingent obligations) arising out of variable interests in
unconsolidated entities providing financing, liquidity, market risk, or credit
risk support to the Company, or that engage in leasing, hedging, or research and
development services with the Company.

Related Party Transactions
--------------------------
     From time to time, the Company enters into transactions with related
parties. For further information, please refer to the Company's disclosure
regarding "Commitments and Related Party Transactions" in Note 9 of the Notes to
Consolidated Financial Statements of the Company's Annual Report on Form 10-K
for the year ended December 31, 2006.

Recently Issued Accounting Pronouncements
-----------------------------------------
     In June 2006, the Financial Accounting Standards Board issued
Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes --
an interpretation of FASB Statement No. 109, Accounting for Income Taxes, which
clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. The Interpretation requires that the Company recognize in the
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and disclosure. The
Company adopted the provisions of FIN 48 on January 1, 2007 as described in Note
11 of the Notes to Financial Statements.

     In September 2006, the Financial Accounting Standards Board issued SFAS No.
157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 defines fair value,
establishes a market-based framework or hierarchy for measuring fair value, and
expands disclosures about fair value measurements. SFAS No. 157 is applicable
whenever another accounting pronouncement requires or permits assets and
liabilities to be measured at fair value. SFAS No. 157 does not expand or
require any new fair value measures. The provisions of SFAS No. 157 are to be
applied prospectively and are effective for financial statements issued for
fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact, if any, the adoption of SFAS No. 157 will have on the
Company's financial statements.

                         -----------------------------


                                       25
<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and
-------       ---------------------------------------------------------------
              Results of Operations (Continued)
              ---------------------


Cautionary Statement
--------------------
     Certain statements contained herein are not based on historical fact and
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and the Securities and Exchange Commission rules,
regulations, and releases. The Company intends that such forward-looking
statements be subject to the safe harbors created thereby. Among other things,
the forward-looking statements regard the Company's earnings, liquidity,
financial condition, review of strategic alternatives, and other matters. Words
or phrases denoting the anticipated results of future events, such as
"anticipate," "does not anticipate," "should help to," "believe," "estimate,"
"is positioned," "expects," "may," "will," "will likely," "is expected to,"
"will continue," "should," "project," and similar expressions that denote
uncertainty, are intended to identify such forward-looking statements. The
Company's actual results, performance, or achievements could differ materially
from the results expressed in, or implied by, such "forward-looking statements":
(1) as a result of risks and uncertainties identified in connection with those
forward-looking statements, including those factors identified herein, and in
the Company's other publicly filed reports; (2) as a result of factors over
which the Company has no control, including the strength of domestic and foreign
economies, sales growth, competition, and certain costs increases; or (3) if the
factors on which the Company's conclusions are based do not conform to the
Company's expectations.


Item 3.       Quantitative and Qualitative Disclosures About Market Risk
-------       ----------------------------------------------------------


     The Company does not believe that its exposures to interest rate risk or
foreign currency exchange risk, risks from commodity prices, equity prices and
other market changes that affect market risk sensitive instruments are material
to its results of operations.


Item 4.       Controls and Procedures
-------       -----------------------

(a)  Evaluation of Disclosure Controls and Procedures

     An evaluation was performed under the supervision and with the
     participation of the Company's management, including its Chief Executive
     Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness
     of the Company's disclosure controls and procedures, as such term is
     defined under Rule 13a-15(e) promulgated under the Securities Exchange Act
     of 1934, as amended (the "Exchange Act") as of June 30, 2007. Based on that
     evaluation, the Company's management, including the CEO and CFO, concluded
     that the Company's disclosure controls and procedures are effective to
     ensure that information required to be disclosed by the Company in reports
     that it files or submits under the Exchange Act, is accumulated and
     communicated to the Company's management, including the Company's CEO and
     CFO, to allow timely decisions regarding required disclosure, and is
     recorded, processed, summarized and reported as specified in Securities and
     Exchange Commission rules and forms.

(b)  Change in Internal Control Over Financial Reporting

     There were no changes in the Company's internal control over financial
     reporting identified in connection with the evaluation of such controls
     that occurred during the Company's fiscal quarter ended June 30, 2007 that
     has materially affected, or is reasonably likely to materially affect the
     Company's internal control over financial reporting.



                                       26
<PAGE>



                          PART II -- OTHER INFORMATION
                          ----------------------------


Item 1.       Legal Proceedings
-------       -----------------

     From time to time, the Company is involved in various claims and legal
actions arising in the ordinary course of business. Although the amount of any
liability that could arise with respect to currently pending actions cannot be
accurately predicted, in the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's financial
position, results of operations, or liquidity.


Item 1A.      Risk Factors
--------      ------------

     Item 1A, "Risk Factors," of our 2006 Form 10-K includes a detailed
discussion of our risk factors. There have been no material changes in our Risk
Factors from those disclosed in our annual report on Form 10-K for the year and
December 31, 2006.


Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds
-------       -----------------------------------------------------------

     The following table represents the periodic repurchases of equity
securities made by the Company during the three months ended June 30, 2007:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
                                       Issuer Purchases of Equity Securities
-----------------------------------------------------------------------------------------------------------------
                                      Average         Total Number        Approximate         Approximate
                                    Price Paid          of Shares         Dollar Value       Dollar Value
                       Total         Per Share        Repurchased          of Shares           of Shares
                       Number       (Including        as Part of a         Purchased         That May Yet
     Fiscal           of Shares      Brokerage      Publicly Announced     Under the         Be Purchased
     Period          Repurchased    Commissions)         Program            Program        Under the Program
-----------------------------------------------------------------------------------------------------------------
<S>                    <C>            <C>                <C>               <C>                 <C>
4/01/07 - 4/30/07      43,849         $ 5.69             43,849            $ 249,555           $ 883,857
5/01/07 - 5/31/07           -         $   -                   -            $       -           $ 883,857
6/01/07 - 6/30/07           -         $   -                   -            $       -           $ 883,857
                    ---------------------------------------------------------------------
                       43,849         $ 5.69             43,849            $ 249,555
-----------------------------------------------------------------------------------------------------------------
</TABLE>

     On August 12, 2004, the Company's Board of Directors approved a program to
repurchase up to $1,000,000 of its outstanding common stock. The Company's Board
of Directors amended its existing stock repurchase program on several occasions
during 2005 and 2006 by increasing the amount it has authorized management to
repurchase from up to $1,000,000 of the Company's common stock to up to
$14,000,000.

     On January 7, 2007, the Company's Board of Directors amended its existing
stock repurchase program by increasing the amount it has authorized management
to repurchase from up to $14,000,000 of the Company's common stock to up to
$15,000,000.

     During the three months ended June 30, 2007, the Company repurchased 43,849
shares of common stock at a weighted average cost, including brokerage
commissions, of $5.69 per share. During the six months ended June 30, 2007, the
Company repurchased 99,699 shares of common stock at a weighted average cost,
including brokerage commissions, of $5.68 per share. Cash expenditures for the
stock repurchases during the three and six months ended June 30, 2007 were
$249,555 and $566,732, respectively. Through June 30, 2007, the Company
repurchased 1,637,718 shares of common stock at a weighted average cost,
including brokerage commissions, of $8.62 per share. Cash expenditures for the
stock repurchases since the inception of the program were $14,116,143. As of
June 30, 2007, $883,857 remained available for repurchases under the stock
repurchase program.


                                       27
<PAGE>



Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds
------        -----------------------------------------------------------
              (Continued)

     Based on market conditions and other factors, additional repurchases may be
made from time to time, in compliance with SEC regulations, in the open market
or through privately negotiated transactions at the discretion of the Company.
There is no expiration date with regards to the stock repurchase program. The
purchase price for the shares of the Company's common stock repurchased was
reflected as a reduction to stockholders' equity. The Company allocates the
purchase price of the repurchased shares as a reduction to common stock for the
par value of the shares repurchased, with the excess of the purchase price over
par value being allocated between additional paid-in capital and retained
earnings. All shares of common stock that were repurchased by the Company since
the inception of the program were subsequently retired.


Item 3.       Defaults Upon Senior Securities
-------       -------------------------------

     Not applicable.


Item 4.       Submission of Matters to a Vote of Security Holders
-------       ---------------------------------------------------

     Not applicable.


Item 5.       Other Information
-------       -----------------

     Not applicable.













                                       28
<PAGE>



Item 6.       Exhibits
-------       --------

     Exhibit No.      Description
     -----------      -----------

         10.41        Renewal  Agreement  for the  Promissory  Note  related to
                      the Line of Credit  entered  into June 20,  2007 by and
                      between Paragon Technologies, Inc. and Wachovia Bank,
                      National Association (filed herewith).

         31.1         Certification by Chief Executive Officer pursuant to Rule
                      13a-14(a) and 15d-14(a), as adopted pursuant to Section
                      302 of the Sarbanes-Oxley Act of 2002 signed by Leonard S.
                      Yurkovic, Acting CEO (filed herewith).

         31.2         Certification by Chief Financial Officer pursuant to Rule
                      13a-14(a) and 15d-14(a), as adopted pursuant to Section
                      302 of the Sarbanes-Oxley Act of 2002 signed by Ronald J.
                      Semanick, Chief Financial Officer and Vice President -
                      Finance and Treasurer (filed herewith).

         32.1         Certification  pursuant to 18 U.S.C.  Section 1350, as
                      adopted pursuant to Section 906 of the  Sarbanes-Oxley Act
                      of 2002 signed by Leonard S. Yurkovic, Acting CEO (filed
                      herewith).

         32.2         Certification pursuant to 18 U.S.C. Section 1350, as
                      adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                      of 2002 signed by Ronald J. Semanick, Chief Financial
                      Officer and Vice President - Finance and Treasurer (filed
                      herewith).











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<PAGE>



                                   SIGNATURES
                                   ----------


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                          PARAGON TECHNOLOGIES, INC.



                          /s/ Leonard S. Yurkovic
                          -----------------------------------------------
                          Leonard S. Yurkovic
                          Acting CEO



                          /s/ Ronald J. Semanick
                          -----------------------------------------------
                          Ronald J. Semanick
                          Chief Financial Officer





Dated:          August 10, 2007
                ---------------



















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<PAGE>



                                  EXHIBIT INDEX
                                  -------------


     Exhibit No.      Description
     -----------      -----------

       10.41          Renewal Agreement for the Promissory Note related to the
                         Line of Credit  entered into June 20, 2007 by and
                         between Paragon Technologies, Inc. and Wachovia Bank,
                         National Association (filed herewith).

       31.1           Certification by Chief Executive Officer pursuant to
                         Rule 13a-14(a) and 15d-14(a), as adopted pursuant to
                         Section 302 of the Sarbanes-Oxley Act of 2002 signed by
                         Leonard S. Yurkovic, Acting CEO (filed herewith).

       31.2           Certification by Chief Financial Officer pursuantto Rule
                         13a-14(a) and  15d-14(a),  as adopted  pursuant to
                         Section 302 of the Sarbanes-Oxley  Act of 2002 signed
                         by Ronald J. Semanick,  Chief Financial Officer and
                         Vice President - Finance and Treasurer (filed
                         herewith).

       32.1           Certification pursuant to 18 U.S.C. Section 1350, as
                         adopted pursuant to Section 906 of the Sarbanes-Oxley
                         Act of 2002 signed by Leonard S. Yurkovic, Acting CEO
                         (filed herewith).

       32.2           Certification pursuant to 18 U.S.C. Section 1350, as
                         adopted pursuant to Section 906 of the Sarbanes-Oxley
                         Act of 2002 signed by Ronald J. Semanick, Chief
                         Financial Officer and Vice President - Finance and
                         Treasurer (filed herewith).












                                       31