Attached files
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EX-32.2 - EX-32.2 - PARADISE INC | v352185_ex32-2.htm |
EX-31.1 - EX-31.1 - PARADISE INC | v352185_ex31-1.htm |
EX-32.1 - EX-32.1 - PARADISE INC | v352185_ex32-1.htm |
EX-31.2 - EX-31.2 - PARADISE INC | v352185_ex31-2.htm |
EXCEL - IDEA: XBRL DOCUMENT - PARADISE INC | Financial_Report.xls |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________
x Quarterly report pursuant to section 13 or 15(d) of the Securities Act of 1934.
For the quarterly period ended June 30, 2013
or
¨ Transition report pursuant to section 13 or 15(d) of the Securities Act of 1934.
Commission File No. 0-3026
__________________
PARADISE, INC.
________________
INCORPORATED IN FLORIDA
I.R.S. EMPLOYER IDENTIFICATION NO. 59-1007583
1200 DR. MARTIN LUTHER KING, JR. BLVD.,
PLANT CITY, FLORIDA 33563
(813) 752-1155
__________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| | | | |
| Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
The number of shares outstanding of each of the issuer’s classes of common stock as of August 14, 2013 was 519,600 shares.
PARADISE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013
INDEX
| | PAGE |
PART I. | FINANCIAL INFORMATION | |
| | |
| ITEM 1. | |
| | |
| CONSOLIDATED BALANCE SHEETS: | |
| | |
| Assets | |
| | |
| As of June 30, 2013 (Unaudited), December 31, 2012 and June 30, 2012 (Unaudited) | 2 |
| | |
| Liabilities and Stockholders’ Equity | |
| | |
| As of June 30, 2013 (Unaudited), December 31, 2012 and June 30, 2012 (Unaudited) | 3 |
| | |
| CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED): | |
| | |
| For the three-month periods ended June 30, 2013 and 2012 | 4 |
| | |
| For the six-month periods ended June 30, 2013 and 2012 | 5 |
| | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED): | |
| | |
| For the six-month periods ended June 30, 2013 and 2012 | 6 |
| | |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | 7 9 |
| | |
| ITEM 2. | |
| | |
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 10 13 |
| | |
| ITEM 3. | |
| | |
| QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK N/A | 13 |
| | |
| ITEM 4. | |
| | |
| CONTROLS AND PROCEDURES | 13 |
| | |
PART II. | OTHER INFORMATION | |
| | |
| ITEMS 1 6. | 14 |
| | |
SIGNATURES | 15 |
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
| |
Item 1. | Financial Statements |
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | AS OF | | | | | AS OF | | ||
| | JUNE 30, | | | AS OF | | JUNE 30, | | ||
| | 2013 | | DECEMBER 31, | | 2012 | | |||
| | (UNAUDITED) | | 2012 | | (UNAUDITED) | | |||
ASSETS | | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | | |
Cash | | $ | 963,849 | | $ | 6,384,087 | | $ | 1,053,707 | |
Accounts Receivable, | | | | | | | | | | |
Less, Allowances of $0 (06/30/13), $1,562,556 (12/31/12) and $0 (06/30/12) | | | 1,053,791 | | | 1,893,160 | | | 1,500,421 | |
Inventories: | | | | | | | | | | |
Raw Materials and Supplies | | | 4,657,655 | | | 2,499,430 | | | 4,465,783 | |
Work in Process | | | 463,835 | | | 561,043 | | | 417,867 | |
Finished Goods | | | 9,331,047 | | | 5,795,906 | | | 8,624,074 | |
Income Tax Receivable | | | 307,794 | | | 225,794 | | | - | |
Deferred Income Tax Asset | | | 316,067 | | | 152,250 | | | 260,325 | |
Prepaid Expenses and Other Current Assets | | | 566,129 | | | 296,728 | | | 585,437 | |
Total Current Assets | | | 17,660,167 | | | 17,808,398 | | | 16,907,614 | |
Property, Plant and Equipment, | | | | | | | | | | |
Less, Accumulated Depreciation of $18,685,992 (06/30/13), $18,454,410 (12/31/12) and $18,744,791 (06/30/12) | | | 3,939,420 | | | 3,946,124 | | | 4,046,628 | |
Goodwill | | | 413,280 | | | 413,280 | | | 413,280 | |
Customer Base and Non-Compete Agreement | | | 376,805 | | | 439,747 | | | 502,690 | |
Other Assets | | | 322,471 | | | 281,935 | | | 236,269 | |
TOTAL ASSETS | | $ | 22,712,143 | | $ | 22,889,484 | | $ | 22,106,481 | |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
2
| | AS OF | | | | | AS OF | | ||
| | JUNE 30, | | AS OF | | JUNE 30, | | |||
| | 2013 | | DECEMBER 31, | | 2012 | | |||
| | (UNAUDITED) | | 2012 | | (UNAUDITED) | | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | |
Short Term Debt | | $ | 561,826 | | $ | 515,866 | | $ | 731,698 | |
Accounts Payable | | | 1,207,128 | | | 375,067 | | | 1,353,224 | |
Accrued Liabilities | | | 383,556 | | | 1,093,698 | | | 268,075 | |
Total Current Liabilities | | | 2,152,510 | | | 1,984,631 | | | 2,352,997 | |
DEFERRED INCOME TAX LIABILITY | | | 272,063 | | | 272,063 | | | 165,891 | |
Total Liabilities | | | 2,424,573 | | | 2,256,694 | | | 2,518,888 | |
STOCKHOLDERS’ EQUITY: | | | | | | | | | | |
Common Stock: $0.30 Par Value, 2,000,000 Shares Authorized, 583,094 Shares Issued, 519,600 Shares Outstanding | | | 174,928 | | | 174,928 | | | 174,928 | |
Capital in Excess of Par Value | | | 1,288,793 | | | 1,288,793 | | | 1,288,793 | |
Retained Earnings | | | 19,097,068 | | | 19,442,288 | | | 18,397,091 | |
Treasury Stock, at Cost, 63,494 Shares | | | (273,219) | | | (273,219) | | | (273,219) | |
Total Stockholders’ Equity | | | 20,287,570 | | | 20,632,790 | | | 19,587,593 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 22,712,143 | | $ | 22,889,484 | | $ | 22,106,481 | |
3
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | FOR THE THREE MONTHS ENDED | | ||||
| | JUNE 30, | | ||||
| | 2013 | | 2012 | | ||
Net Sales | | $ | 2,715,210 | | $ | 2,584,521 | |
Costs and Expenses: | | | | | | | |
Cost of Goods Sold | | | 1,874,839 | | | 2,014,406 | |
Selling, General and Administrative Expense | | | 813,700 | | | 811,562 | |
Amortization Expense | | | 35,972 | | | 35,972 | |
Total Costs and Expenses | | | 2,724,511 | | | 2,861,940 | |
Loss from Operations | | | (9,301) | | | (277,419) | |
Other Loss | | | (62,789) | | | (6,179) | |
Loss Before Income Taxes | | | (72,090) | | | (283,598) | |
Income Tax Benefit | | | 29,363 | | | 112,101 | |
Net Loss | | $ | (42,727) | | $ | (171,497) | |
Loss per Common Share (Basic and Diluted) | | $ | (0.08) | | $ | (0.33) | |
Dividend per Common Share | | $ | 0.15 | | $ | 0.20 | |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
4
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | FOR THE SIX MONTHS ENDED | | ||||
| | JUNE 30, | | ||||
| | 2013 | | 2012 | | ||
Net Sales | | $ | 5,776,814 | | $ | 5,853,391 | |
Costs and Expenses: | | | | | | | |
Cost of Goods Sold | | | 4,476,218 | | | 4,301,901 | |
Selling, General and Administrative Expense | | | 1,698,558 | | | 1,617,087 | |
Amortization Expense | | | 71,943 | | | 71,943 | |
Total Costs and Expenses | | | 6,246,719 | | | 5,990,931 | |
Loss from Operations | | | (469,905) | | | (137,540) | |
Other Income | | | 38,811 | | | 70,665 | |
Loss Before Income Taxes | | | (431,094) | | | (66,875) | |
Income Tax Benefit | | | 163,817 | | | 25,413 | |
Net Loss | | $ | (267,277) | | $ | (41,462) | |
Loss per Common Share (Basic and Diluted) | | $ | (0.51) | | $ | (0.08) | |
Dividend per Common Share | | $ | 0.15 | | $ | 0.20 | |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
5
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | FOR THE SIX MONTHS ENDED | | ||||
| | JUNE 30, | | ||||
| | 2013 | | 2012 | | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | |
Net Loss | | $ | (267,277) | | $ | (41,462) | |
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | | | | | | | |
Depreciation and Amortization | | | 303,524 | | | 310,771 | |
Provision for Deferred Income Taxes | | | (163,817) | | | (25,413) | |
Decrease (Increase) in: | | | | | | | |
Accounts Receivable | | | 839,369 | | | 1,078,941 | |
Inventories | | | (5,596,158) | | | (7,311,207) | |
Prepaid Expenses and Other Current Assets | | | (269,401) | | | (290,024) | |
Income Tax Receivable | | | (82,000) | | | - | |
Other Assets | | | (49,536) | | | (22,606) | |
Increase (Decrease) in: | | | | | | | |
Accounts Payable | | | 832,061 | | | 993,571 | |
Accrued Expense | | | (710,142) | | | (950,214) | |
Income Taxes Payable | | | - | | | (370,678) | |
Net Cash Used in Operating Activities | | | (5,163,377) | | | (6,628,321) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
Purchase of Property and Equipment | | | (224,881) | | | (101,412) | |
Net Cash Used in Investing Activities | | | (224,881) | | | (101,412) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
Net Proceeds from Short Term Debt | | | 45,960 | | | 418,452 | |
Dividends Paid | | | (77,940) | | | (103,920) | |
Net Cash (Used in) Provided by Financing Activities | | | (31,980) | | | 314,532 | |
NET DECREASE IN CASH | | | (5,420,238) | | | (6,415,201) | |
CASH, AT BEGINNING OF PERIOD | | | 6,384,087 | | | 7,468,908 | |
CASH, AT END OF PERIOD | | $ | 963,849 | | $ | 1,053,707 | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | |
Cash paid for: | | | | | | | |
Income Taxes | | $ | 82,000 | | $ | 410,000 | |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
6
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Paradise, Inc. (the “Company”) have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
The information furnished herein reflects all adjustments and accruals of a normal recurring nature that management believes are necessary to fairly state the operating results for the respective periods. The notes to the unaudited consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements contained in the Company’s Form 10-K for the year ended December 31, 2012. The Company’s management believes that the disclosures are sufficient for interim financial reporting purposes.
Consumer demand for glace’ fruit product is traditionally strongest during the Thanksgiving and Christmas season. Almost 80% of glace’ fruit product sales are recorded during an eight to ten week period beginning in mid September. Therefore, the operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the current year.
Certain minor reclassifications have been made to the consolidated unaudited financial statements for the quarter ended June 30, 2012 to conform to the classifications used for the quarter ended June 30, 2013.
NOTE 2 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company’s management does not believe that any recent codified pronouncements by the Financial Accounting Standards Board (“FASB”) (including its EITF), the AICPA or the Securities and Exchange Commission will have a material impact on the Company’s current or future consolidated financial statements.
NOTE 3 LOSS PER COMMON SHARE
Basic and diluted loss per common share is based on the weighted average number of shares outstanding and assumed to be outstanding of 519,600. There are no dilutive securities outstanding.
7
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 BUSINESS SEGMENT DATA
The Company’s operations are conducted through two business segments. These segments, and the primary operations of each, are as follows:
| Business Segment | | Operation |
| | | |
| Fruit | | Production of candied fruit, a basic fruitcake ingredient, sold to manufacturing bakers, institutional users, and retailers for use in home baking. Also, based on market conditions, the processing of frozen strawberry products, for sale to commercial and institutional users such as preservers, dairies, drink manufacturers, etc. |
| | | |
| Molded Plastics | | Production of plastics containers and other molded plastics for sale to various food processors and others. |
| | Three months ended | | Three months ended | | ||
| | June 30, | | June 30, | | ||
| | 2013 | | 2012 | | ||
Net Sales in Each Segment | | | | | | | |
| | | | | | | |
Fruit: | | | | | | | |
Sales to Unaffiliated Customers | | $ | 390,766 | | $ | 357,713 | |
| | | | | | | |
Molded Plastics: | | | | | | | |
Sales to Unaffiliated Customers | | | 2,324,444 | | | 2,226,808 | |
| | | | | | | |
Net Sales | | $ | 2,715,210 | | $ | 2,584,521 | |
| | Six months ended | | Six months ended | | ||
| | June 30, | | June 30, | | ||
| | 2013 | | 2012 | | ||
Net Sales in Each Segment | | | | | | | |
| | | | | | | |
Fruit: | | | | | | | |
Sales to Unaffiliated Customers | | $ | 1,215,503 | | $ | 1,234,522 | |
| | | | | | | |
Molded Plastics: | | | | | | | |
Sales to Unaffiliated Customers | | | 4,561,311 | | | 4,618,869 | |
| | | | | | | |
Net Sales | | $ | 5,776,814 | | $ | 5,853,391 | |
The Company does not prepare operating profit or loss information on a segment basis for internal use, until the end of each year. Due to the seasonal nature of the fruit segment, management believes that it is not practical to prepare this information for interim reporting purposes. Therefore, reporting is not required by accounting principles generally accepted in the United States of America.
8
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 BUSINESS SEGMENT DATA (CONTINUED)
| | June 30, | | June 30, | | ||
| | 2013 | | 2012 | | ||
Identifiable Assets of Each Segment are Listed Below: | | | | | | | |
| | | | | | | |
Fruit | | $ | 14,696,781 | | $ | 14,092,137 | |
| | | | | | | |
Molded Plastics | | | 4,936,802 | | | 5,141,204 | |
| | | | | | | |
Identifiable Assets | | | 19,633,583 | | | 19,233,341 | |
| | | | | | | |
General Corporate Assets | | | 3,078,560 | | | 2,873,140 | |
| | | | | | | |
Total Assets | | $ | 22,712,143 | | $ | 22,106,481 | |
Identifiable assets by segment are those assets that are principally used in the operations of each segment. General corporate assets are principally cash, land and buildings, and income tax assets.
NOTE 5 OTHER ISSUES
On June 20, 2013, Paradise, Inc. renewed its revolving line of credit with a financial institution for a two year period maturing on June 23, 2015. Paradise, Inc.’s revolving line of credit has a maximum limit of $12,000,000 with a borrowing base of 80% of the Company’s eligible receivables plus the lessor of $6,000,000 or 50% of the Company’s eligible inventory from January through May of each year and 60% of eligible inventory from June to December of each year. This agreement is secured by all the assets of the Company and the agreement requires that certain conditions are met for the Company to continue borrowing, including debt service coverage and debt to equity ratios and other financial covenants including an agreement not to encumber a mortgage on the property without bank approval. Interest is payable monthly at the bank’s LIBOR rate plus 1.75%.
During 2012, the Company filed a settlement claim against BP Exploration & Production, Inc. and BP America Production Company (“BP”). The claim is subject to review by a claims board as well as a protest period by BP. An amount has not been recorded in the Company’s consolidated financial statements due to the inherent uncertainty in the claims process.
9
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
| ForwardLooking Statements |
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact should be considered “forward-looking statements” for the purpose of these provisions, including statements that include projections of, or expectations about, earnings, revenues or other financial items, statements about our plans and objectives for future operations, statements concerning proposed new products or services, statements regarding future economic conditions or performance, statements concerning our expectations regarding the attraction and retention of customers, statements about market risk and statements underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of such terminology as “may”, “will”, “expects”, “potential”, or “continue”, or the negative thereof or other similar words. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that such expectations or any of our forward-looking statements will prove to be correct. Actual results and developments are likely to be different from, and may be materially different from, those expressed or implied by our forward-looking statements. Forward-looking statements are subject to inherent risks and uncertainties.
Overview
Paradise, Inc.’s main business segment, glace’ fruit, a prime ingredient of fruitcakes and other holiday confections, represented 67.7% of total net sales during 2012. These products are sold to manufacturing bakers, institutional users, supermarkets and other retailers throughout the country. Consumer demand for glace’ fruit product is traditionally strongest during the Thanksgiving and Christmas season. Almost 80% of glace’ fruit product sales are recorded during an eight to ten week period beginning in mid September.
Since the majority of the Company’s customers require delivery of glace’ candied fruit products during this relatively short period of time, Paradise, Inc. must operate at consistent levels of production from as early as January through the middle of November of each year in order to meet peak demands. Furthermore, the Company must make substantial borrowings of short-term working capital to cover the cost of raw materials, factory overhead and labor expense associated with production for inventory. This combination of building and financing inventories during the year, without the opportunity to record any significant fruit product income, results in the generation of operating losses well into the third quarter of each year. Therefore, it is the opinion of management that meaningful forecasts of annual net sales or profit levels require analysis of a full year’s operations.
In addition, comparison of current quarterly results to the preceding quarter produces an incomplete picture on the Company’s performance due to year-to-year changes in production schedules, seasonal harvests and availability of raw materials, and in the timing of customer orders and shipments. Thus, the discussion of information presented within this report is focused on the review of the Company’s current year-to-date results as compared to the similar period last year.
Paradise, Inc.’s other business segment, Paradise Plastics, Inc., a wholly owned subsidiary of Paradise, Inc. producing custom molding products, is not subject to the seasonality of the glace’ fruit business. This segment represents all injection molding and thermoforming operations, including the packaging for the Company’s fruit products. Only sales to unaffiliated customers are reported.
10
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
The First Six Months
Paradise, Inc.’s fruit segment net sales for the first six months of 2013 decreased 1.5% to $1,215,503 from $1,234,522 for the similar reporting period of 2012. Paradise, Inc.’s fruit segment sales are very seasonal in nature as net sales for the first six months of the year have historically represented less than 5% of annual net sales. The primary sales activity within this segment for the first six months of the year relates to bulk fruit orders received and shipped to supermarkets and manufacturing bakeries. The remaining volume of sales activity consists of the sale of finished strawberry products produced exclusively for a local Plant City, Florida distributor during late March and early April of each year. For a tolling fee, Paradise, Inc. will receive and process fresh strawberries on behalf of this distributor. Tolling charges earned during the first six months of 2013 were $280,950 compared to $521,952 for the similar reporting period of 2012. The reduction in tolling income of $241,002 was caused by a labor shortage in gathering strawberries on behalf of this local distributor for delivery to Paradise, Inc.’s facility.
Paradise Plastics, Inc.’s net sales to unaffiliated customers during the first six months of 2013 decreased 1.2% to $4,561,311 from $4,618,869 compared to the similar reporting period of 2012. This decrease is primarily related to the transitioning away from the production and shipment of a custom molding product for a long term customer whose own product line changed during the second quarter of 2013. Paradise Plastics, Inc. is in the process of developing a new prototype custom mold for this existing customer. The Company is continuing its development and testing of this new custom plastics mold in order to comply with the customer’s requirements. Paradise, Inc.’s management is confident that once approval for this mold is received that production and subsequent shipment of this product will begin in the second half of 2013.
Consolidated cost of sales, as a percentage of net sales, increased 4.1% during the first six months of 2013 compared to the similar reporting period of 2012. This increase is primarily contributable to the following two reasons. First, with the shortage of available labor to gather strawberries from various farms within the local area, Paradise, Inc. received and processed approximately 2,800,000 less pounds of strawberries through its facilities during the first six months of 2013 compared to the similar period of 2012. Secondly, certain raw fruit material received from one of the Company’s suppliers, which is subject to specific size and quality requirements before being processed and placed into inventory, had a higher rejection rate than in the previous year. Thus, the reduction in the amount of raw fruit materials processed through the plant during the non-traditional production period of January through May, will result in a higher percentage of cost of sales as the Company must maintain a certain level of fixed expenses throughout the year. However, it is important to note that with less than 30% of Paradise, Inc.’s retail glace’ fruit production cycle yet to commence as of June 30, 2013, it is still too early to forecast with any reasonable certainty cost of sales as it relates to a percentage of consolidated sales until a full year’s inventory production cycle is completed.
Selling, general and administrative expenses for the first six months of 2013 increased 5.0 % compared to the similar reporting period of 2012. This increase was related to management 's decision to attend additional food and trade shows to promote the sale of the company's glace' fruit and dried fruit snack products.
11
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
| |
| Other Significant Items |
On June 20, 2013, Paradise, Inc. renewed its revolving line of credit with a financial institution for a two year period maturing on June 23, 2015. Paradise, Inc.’s revolving line of credit has a maximum limit of $12,000,000 with a borrowing base of 80% of the Company’s eligible receivables plus the lessor of $6,000,000 or 50% of the Company’s eligible inventory from January through May of each year and 60% of eligible inventory from June to December of each year. This agreement is secured by all the assets of the Company and the agreement requires that certain conditions are met for the Company to continue borrowing, including debt service coverage and debt to equity ratios and other financial covenants including an agreement not to encumber a mortgage on the property without bank approval. Interest is payable monthly at the bank’s LIBOR rate plus 1.75%.
Inventory as of June 30, 2013 totaled $14,452,537 compared to $13,507,724 as of June 30, 2012, representing an increase of $944,813. This increase as previously reported in the Company’s December 31, 2012 annual filing was caused by an increase in returns of retail glace’ fruit from a long-term customer. Management provided an estimated impact for products returned by applying an allowance against accounts receivables for the invoiced price of these returns and a provision to recognize a related estimate of finished goods returns was added to inventory at December 31, 2012.
We finance our ongoing operations primarily with cash provided by our operating activities which are seasonal in nature. Our principal sources of liquidity are our cash flows provided by operating activities, our existing cash, and a line of credit facility. At June 30, 2013 and December 31, 2012, we had $963,849 and $6,384,087, respectively, in cash. Additionally, we have a revolving line of credit with a maximum limit of $12 million and a borrowing limit of 80% of the Company’s eligible receivables plus 50% of the Company’s eligible inventory from January 1 to May 31 and 60% from June 1 to December 31 of each year, of which $0 was outstanding at June 30, 2013 and $0 at December 31, 2012. Within this agreement, there are letters of credit with a limit of $1,200,000, of which $561,826 was outstanding at June 30, 2013 and $515,866 at December 31, 2012. The line of credit agreement expires in June 2015. Net cash used in operating activities decreased from $6,628,321 for the six months ended June 30, 2012 to $5,163,377 for the six months ended June 30, 2013. The primary reasons for this decrease are as follows; income tax payments made during the six months ended June 30, 2013 were $328,000 less than the six months ended June 30, 2012; Accounts Receivable net payments received from Paradise, Inc.’s customers during the six months ended June 30, 2013 were $239,572 less than the similar reporting period of 2012. Lastly, net cash provided by financing activities decreased from $314,532 for the six months ended June 30, 2012 to $(31,980) for the six months ended June 30, 2013 due to timing of payments on letters of credit.
| Summary |
Paradise Inc.’s consolidated net sales decreased 1.3% for the first six months of 2013 compared to the similar reporting period of 2012 from $5,853,391 to $5,776,814. However, as mentioned and disclosed in all previous interim filings, due to the highly seasonal nature of the Company’s primary product, glace’ fruit, which accounts for approximately 70% of consolidated annual revenue, no meaningful financial analysis may be developed from Paradise, Inc.’s interim reporting results. Only a full year’s accounting of revenue and expenses will provide the necessary information to determine the Company’s financial performance.
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PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
| |
| Critical Accounting Estimates |
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make assessments, estimates and assumptions that affect the amounts reported in the consolidated financial statements. We evaluate the accounting policies and estimates used to prepare the consolidated financial statements on an ongoing basis. Critical accounting estimates are those that require management’s most difficult, complex, or subjective judgments and have the most potential to impact our financial position and operating results. For a detailed discussion of our critical accounting estimates, see our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes to our critical accounting estimates during the six months ended June 30, 2013.
| Recently Issued Accounting Pronouncements |
The Company’s management does not believe that any recent codified pronouncements by the Financial Accounting Standards Board (“FASB”) (including its EITF), the AICPA or the Securities and Exchange Commission will have a material impact on the Company’s current or future consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosure and Market Risk N/A
Item 4. Controls and Procedures
As of June 30, 2013, our Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, and they have concluded that we maintain effective disclosure controls and procedures. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2013.
Disclosure controls and procedures mean the methods designed to ensure that information that the Company is required to disclose in the reports that it files with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods required. Our controls and procedures are designed to ensure that all information required to be disclosed is accumulated and communicated to our management to allow timely decisions regarding disclosure. During June 2013, we identified a material weakness in our internal controls over the interim period review of data input into the Company’s inventory system. Effective immediately after this discovery, additional procedures were established, which strengthened internal control and remediated the material weakness. Our controls and procedures are also designed to provide reasonable assurance of the reliability of our financial reporting and accurate recording of our financial transactions.
A control system, however well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. There are inherent limitations in all control systems, and no evaluation of controls can provide absolute assurance that all control gaps or instances of fraud have been detected. These inherent limitations include the realities that the judgments in decision-making can be faulty, and that simple errors or mistakes can occur.
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PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 1A. Risk Factors N/A
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Mine Safety Disclosures N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
| Exhibit | | |
| Number | | Description |
| | | |
| 31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| 31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| 32.1 | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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| 32.2 | | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(b) Reports on Form 8-K.
None.
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PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
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.
| PARADISE, INC. | |
| A Florida Corporation | |
| | |
| /s/ Melvin S. Gordon | Date: August 14, 2013 |
| Melvin S. Gordon | |
| Chief Executive Officer and Chairman | |
| | |
| /s/ Jack M. Laskowitz | Date: August 14, 2013 |
| Jack M. Laskowitz | |
| Chief Financial Officer and Treasurer | |
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