Welcome!

News Feed Item

Paragon Technologies' Chairman Sham Gad's Annual Letter to Stockholders

EASTON, Pa., Nov. 16, 2012 /PRNewswire/ --

To the Shareholders of Paragon Technologies:

When I first joined the Board of Directors in the second half of 2010, I was very clear in my objectives for Paragon.  The first immediate objective was cost reduction:  in October 2010, Paragon's expenses were little changed from 2007 when the Company was generating over $20 million in sales, more than double the sales figure in 2010.  We reduced costs and as a result, Paragon reported a profit in 2011 compared with a loss of over $1 million in 2010.

In March of 2012, I was unanimously appointed Chairman of the Board.  Two new directors, Samuel Weiser and Jack Jacobs joined me on the Board replacing the outgoing four Board members.  Both Sam and Jack are highly accomplished businessmen, but more importantly, both are exceptional people both inside and outside the board room.

Reinvigorated with a completely new Board, we quickly and carefully conducted a comprehensive review of the business, evaluated management and associates, and began a vigorous process of eradicating a culture defined by entitlement and creating a culture motivated by performance.  As a direct result of those efforts we are now in a position to steer Paragon in a new direction with a singular focus:  increasing the per share intrinsic value of the Company.  This letter will outline our business principles that we will employ to run Paragon.

A successful value-creating business, in our view, is one ingrained with a culture of performance.  For such a corporate culture to flourish, a business should have (a) a strong and ethical management team; (b) a low cost structure; (c) a consistently strong balance sheet; (d) an intense focus on maximizing intrinsic value per share; and (e) the passion to execute on that focus.

Ultimate Objective:  Maximizing Intrinsic Value per Share

The intrinsic value of any business is calculated by taking the sum of all cash flows into and out of the business and then discounting those cash flows by an appropriate interest rate.  Operating under the mandate of maximizing per share intrinsic value is important because that maximization ultimately leads to growth in shareholder value.  Our focus on intrinsic value maximization is crucially important for one very distinct reason:  earnings per share (EPS) growth does not necessarily lead to intrinsic value per share growth.  Earnings, with very little managerial effort and without running afoul of the law, can be readily altered to produce EPS growth.  For example, by simply offering its customers more liberal credit terms, a business can manufacture earnings growth.  Purchases on credit create a legitimate sale and corresponding profit.  Yet until such a profit is converted into cash flow upon collection of the corresponding receivable, there is no growth in intrinsic value.

The distinction between intrinsic value growth and earnings growth cannot be underestimated.  To understand and focus on increasing intrinsic value requires nothing less than a complete shift in focus from the business status quo.  Although Paragon's past management may have focused on earnings growth, going forward Paragon's financial mission will be to maximize free cash flow and return on invested capital.

As a byproduct of this mission, the intelligent allocation of capital is critical.  Simply put, our capital must be allocated in a manner that seeks to maximize return on invested capital.  To that end, Paragon has made some changes that will serve to ensure that both operational efficiency and disciplined capital allocation are the nucleus of our business.  First, we created a holding company structure whereby Paragon is the parent and our material handling business SI Systems is our wholly owned subsidiary.  Second, we have clearly defined the responsibilities of our most senior executives.  All operating decisions of subsidiary companies will be made by the managements of those subsidiaries.  Any and all capital allocation decisions will be made by the Board and me, your Chairman but more importantly the Company's largest shareholder.  This clear articulation of responsibilities will ensure that we remain intensely focused in fulfilling our obligation to shareholders – the maximization of per share intrinsic value.

The single most important litmus test that shareholders should conduct when evaluating a company is to determine whether or not the management of that company has the same alignment of interests as the shareholders.  Alignment of interests between shareholders and management is met when managers themselves are shareholders.  Let me start with your Chairman: as of June 30, 2012, I beneficially own approximately 28% of Paragon's outstanding shares.  Not a single share was acquired via an option grant or other compensatory means but all were purchased at or above prevailing market prices.  My fortunes are 100% aligned with yours; I prosper when you prosper but more importantly, I will equally feel any financial pain.

Our two other Directors, who joined the Board earlier this year, have already become shareholders.  And the compensation structure of both our recently hired Chief Executive Officer and Chief Financial Officer was designed to ensure that their financial fortunes prosper when intrinsic value is increased.  We will benefit with you, not at your expense.

Operational Review:  2011 versus 2010

Paragon Technologies reported a net profit of $191,000 in 2011 compared with a net loss of $1.054 million in 2010.  The turn to profitability in 2011 was a result of higher gross margins and a reduction in SG&A expense.  In 2009, SG&A expense was $3.5 million, or 38% of sales.  By 2011, SG&A expense had been reduced by approximately 30% or $1 million, to $2.4 million.  Yet as any experienced business operator understands, cost cuts are not a permanent path to profitability.  In 2011, SG&A expense still constituted 29% of sales.  Going forward, our Company will be managed in a very cost efficient manner but our future profitability requires revenue growth, specifically profitable revenue growth.  Our intermediate and long-term goals consist of addressing our current lines of business, ascertaining our product relevance in the marketplace, and developing a sound and efficient business plan focused on positioning us in markets where we can be a competitive material handling and fulfillment solutions provider.

As of December 31, 2011, Paragon's per share book value stood at $3.27 compared to $3.14 in 2010.  As of June 30, 2012, per share book value stood at $3.14.  In the long run, the change in Paragon's per share book value should come to serve as a useful measure of the performance of management.  Over the past several years, however, we believe Paragon's book value has merely represented the value of the Company's current assets ascribing no value to the operation of the business.

Given the inconsistent track record of profitability that has plagued Paragon for years, it is explainable that little consideration is given to the business.  But we are implementing significant changes that we believe, over time, will lead to a more accurate valuation of the Company, a valuation we currently believe is below intrinsic value.  We are working vigorously in this pursuit.  I will provide greater color and detail on our operational endeavors in our next annual letter which, for the reasons noted below, will be out around the mid-point of the year as opposed to the tail end of the year.

The Annual Meeting:  An Important Change

For years, Paragon's annual meeting has been held in December of the subsequent year.  Paragon's fiscal year ends on December 31, so to have the annual meeting twelve months later to discuss the Company's financial results for the prior year is ineffective and does not serve shareholders well.

This will be the final year that we have an annual meeting in December.  The Annual Meeting/Shareholder Presentation will be held on Friday, December 7, 2012 at 9:30 a.m. at the offices of our corporate counsel Thompson Hine LLP, Two Alliance Center, 3560 Lenox Road, Suite 1600, Atlanta, GA 30326Once inside the Alliance Center, please follow the appropriate signage to the annual meeting.

Our desire to hold the meeting in Atlanta was that it would make for easier same day travel for our shareholders and Company associates.

We will start the meeting with a Company presentation to be followed by a Q&A session.

Beginning in 2013, Paragon's Annual Meeting will occur sometime during the mid-point of the year, ideally in May or June.  You will be notified as soon as we have our annual report ready.

Sincerely,
Sham Gad
Chairman of the Board
October 30, 2012

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.  Paragon intends that such forward-looking statements be subject to the safe harbors created hereby.  Among other things, the forward-looking statements regard Paragon'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," "is expected," "should," "continue," and similar expressions that denote uncertainty, are intended to identify such forward-looking statements.  Paragon'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 factors over which Paragon has no control, including the strength of domestic and foreign economies, sales growth, competition, and certain cost increases; and (2) if the factors on which Paragon's conclusions are based do not conform to its expectations.  The forward-looking statements contained in this press release may become outdated over time.  Paragon does not assume any responsibility for updating any forward-looking statements.  Furthermore, achievement of the objectives of the Company is subject to certain risks, including, but not limited to, those risks outlined in Paragon's filings with the OTC Markets Group, including its annual report for the fiscal year ended December 31, 2011, and the most recent quarterly report for the period ended September 30, 2012 as filed with the OTC Markets Group.

This press release and prior releases are available at www.ptgamex.com.

SOURCE Paragon Technologies, Inc.

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
"We are an all-flash array storage provider but our focus has been on VM-aware storage specifically for virtualized applications," stated Dhiraj Sehgal of Tintri in this SYS-CON.tv interview at 19th Cloud Expo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
"We build IoT infrastructure products - when you have to integrate different devices, different systems and cloud you have to build an application to do that but we eliminate the need to build an application. Our products can integrate any device, any system, any cloud regardless of protocol," explained Peter Jung, Chief Product Officer at Pulzze Systems, in this SYS-CON.tv interview at @ThingsExpo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
In his general session at 19th Cloud Expo, Manish Dixit, VP of Product and Engineering at Dice, discussed how Dice leverages data insights and tools to help both tech professionals and recruiters better understand how skills relate to each other and which skills are in high demand using interactive visualizations and salary indicator tools to maximize earning potential. Manish Dixit is VP of Product and Engineering at Dice. As the leader of the Product, Engineering and Data Sciences team at D...
It's easy to assume that your app will run on a fast and reliable network. The reality for your app's users, though, is often a slow, unreliable network with spotty coverage. What happens when the network doesn't work, or when the device is in airplane mode? You get unhappy, frustrated users. An offline-first app is an app that works, without error, when there is no network connection. In his session at 18th Cloud Expo, Bradley Holt, a Developer Advocate with IBM Cloud Data Services, discussed...
Between 2005 and 2020, data volumes will grow by a factor of 300 – enough data to stack CDs from the earth to the moon 162 times. This has come to be known as the ‘big data’ phenomenon. Unfortunately, traditional approaches to handling, storing and analyzing data aren’t adequate at this scale: they’re too costly, slow and physically cumbersome to keep up. Fortunately, in response a new breed of technology has emerged that is cheaper, faster and more scalable. Yet, in meeting these new needs they...
Data is the fuel that drives the machine learning algorithmic engines and ultimately provides the business value. In his session at 20th Cloud Expo, Ed Featherston, director/senior enterprise architect at Collaborative Consulting, will discuss the key considerations around quality, volume, timeliness, and pedigree that must be dealt with in order to properly fuel that engine.
In addition to all the benefits, IoT is also bringing new kind of customer experience challenges - cars that unlock themselves, thermostats turning houses into saunas and baby video monitors broadcasting over the internet. This list can only increase because while IoT services should be intuitive and simple to use, the delivery ecosystem is a myriad of potential problems as IoT explodes complexity. So finding a performance issue is like finding the proverbial needle in the haystack.
When it comes to cloud computing, the ability to turn massive amounts of compute cores on and off on demand sounds attractive to IT staff, who need to manage peaks and valleys in user activity. With cloud bursting, the majority of the data can stay on premises while tapping into compute from public cloud providers, reducing risk and minimizing need to move large files. In his session at 18th Cloud Expo, Scott Jeschonek, Director of Product Management at Avere Systems, discussed the IT and busin...
According to Forrester Research, every business will become either a digital predator or digital prey by 2020. To avoid demise, organizations must rapidly create new sources of value in their end-to-end customer experiences. True digital predators also must break down information and process silos and extend digital transformation initiatives to empower employees with the digital resources needed to win, serve, and retain customers.
"We are the public cloud providers. We are currently providing 50% of the resources they need for doing e-commerce business in China and we are hosting about 60% of mobile gaming in China," explained Yi Zheng, CPO and VP of Engineering at CDS Global Cloud, in this SYS-CON.tv interview at 19th Cloud Expo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Fact is, enterprises have significant legacy voice infrastructure that’s costly to replace with pure IP solutions. How can we bring this analog infrastructure into our shiny new cloud applications? There are proven methods to bind both legacy voice applications and traditional PSTN audio into cloud-based applications and services at a carrier scale. Some of the most successful implementations leverage WebRTC, WebSockets, SIP and other open source technologies. In his session at @ThingsExpo, Da...
"Once customers get a year into their IoT deployments, they start to realize that they may have been shortsighted in the ways they built out their deployment and the key thing I see a lot of people looking at is - how can I take equipment data, pull it back in an IoT solution and show it in a dashboard," stated Dave McCarthy, Director of Products at Bsquare Corporation, in this SYS-CON.tv interview at @ThingsExpo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
@DevOpsSummit taking place June 6-8, 2017 at Javits Center, New York City, is co-located with the 20th International Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. @DevOpsSummit at Cloud Expo New York Call for Papers is now open.
Predictive analytics tools monitor, report, and troubleshoot in order to make proactive decisions about the health, performance, and utilization of storage. Most enterprises combine cloud and on-premise storage, resulting in blended environments of physical, virtual, cloud, and other platforms, which justifies more sophisticated storage analytics. In his session at 18th Cloud Expo, Peter McCallum, Vice President of Datacenter Solutions at FalconStor, discussed using predictive analytics to mon...
Today we can collect lots and lots of performance data. We build beautiful dashboards and even have fancy query languages to access and transform the data. Still performance data is a secret language only a couple of people understand. The more business becomes digital the more stakeholders are interested in this data including how it relates to business. Some of these people have never used a monitoring tool before. They have a question on their mind like “How is my application doing” but no id...