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EXCEL - IDEA: XBRL DOCUMENT - PARADISE INC | Financial_Report.xls |
EX-31.1 - EXHIBIT 31.1 - PARADISE INC | v359195_ex31-1.htm |
EX-31.2 - EXHIBIT 31.2 - PARADISE INC | v359195_ex31-2.htm |
EX-32.1 - EXHIBIT 32.1 - PARADISE INC | v359195_ex32-1.htm |
EX-32.2 - EXHIBIT 32.2 - PARADISE INC | v359195_ex32-2.htm |
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 September 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 November 14, 2013 was 519,600 shares.
PARADISE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013
INDEX
| | PAGE |
| | |
PART I. | FINANCIAL INFORMATION | |
| | |
| ITEM 1. | |
| | |
| CONSOLIDATED BALANCE SHEETS: | |
| | |
| Assets | |
| | |
| As of September 30, 2013 (Unaudited), December 31, 2012 and September 30, 2012 (Unaudited) | 2 |
| | |
| Liabilities and Stockholders’ Equity | |
| | |
| As of September 30, 2013 (Unaudited), December 31, 2012 and September 30, 2012 (Unaudited) | 3 |
| | |
| CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED): | |
| | |
| For the three-month periods ended September 30, 2013 and 2012 | 4 |
| | |
| For the nine-month periods ended September 30, 2013 and 2012 | 5 |
| | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED): | |
| | |
| For the nine-month periods ended September 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 | | ||
| | SEPTEMBER 30, | | AS OF | | SEPTEMBER 30, | | |||
| | 2013 | | DECEMBER 31, | | 2012 | | |||
| | (UNAUDITED) | | 2012 | | (UNAUDITED) | | |||
ASSETS | | | | | | | | | | |
| | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | | |
| | | | | | | | | | |
Cash | | $ | 301,648 | | $ | 6,384,087 | | $ | 78 | |
Accounts Receivable, | | | | | | | | | | |
Less, Allowances of $0 (09/30/13), | | | | | | | | | | |
$1,562,556 (12/31/12) and $0 (09/30/12) | | | 7,361,779 | | | 1,893,160 | | | 8,087,910 | |
Inventories: | | | | | | | | | | |
Raw Materials and Supplies | | | 3,253,143 | | | 2,499,430 | | | 3,627,009 | |
Work in Process | | | 313,891 | | | 561,043 | | | 390,446 | |
Finished Goods | | | 9,071,019 | | | 5,795,906 | | | 7,645,579 | |
Deferred Income Tax Asset | | | 152,250 | | | 152,250 | | | 234,912 | |
Income Tax Receivable | | | 196,526 | | | 225,794 | | | - | |
Prepaid Expenses and Other Current Assets | | | 480,522 | | | 296,728 | | | 480,835 | |
| | | | | | | | | | |
Total Current Assets | | | 21,130,778 | | | 17,808,398 | | | 20,466,769 | |
| | | | | | | | | | |
Property, Plant and Equipment, | | | | | | | | | | |
Less, Accumulated Depreciation of | | | | | | | | | | |
$18,801,658 (09/30/13), $18,454,410 (12/31/12) | | | | | | | | | | |
and $18,860,033 (09/30/12) | | | 3,838,876 | | | 3,946,124 | | | 4,036,833 | |
Goodwill | | | 413,280 | | | 413,280 | | | 413,280 | |
Customer Base and Non-Compete Agreement | | | 345,333 | | | 439,747 | | | 471,219 | |
Other Assets | | | 322,365 | | | 281,935 | | | 233,205 | |
| | | | | | | | | | |
TOTAL ASSETS | | $ | 26,050,632 | | $ | 22,889,484 | | $ | 25,621,306 | |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
2 | ||
| | AS OF | | | | | AS OF | | ||
| | SEPTEMBER 30, | | AS OF | | SEPTEMBER 30, | | |||
| | 2013 | | DECEMBER 31, | | 2012 | | |||
| | (UNAUDITED) | | 2012 | | (UNAUDITED) | | |||
| | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | |
| | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | |
| | | | | | | | | | |
Short Term Debt | | $ | 2,672,593 | | $ | 515,866 | | $ | 2,592,084 | |
Accounts Payable | | | 867,153 | | | 375,067 | | | 1,261,334 | |
Accrued Liabilities | | | 794,156 | | | 1,093,698 | | | 774,814 | |
Income Taxes Payable | | | - | | | - | | | 187,777 | |
| | | | | | | | | | |
Total Current Liabilities | | | 4,333,902 | | | 1,984,631 | | | 4,816,009 | |
| | | | | | | | | | |
Deferred Income Tax Liability | | | 272,063 | | | 272,063 | | | 165,891 | |
| | | | | | | | | | |
Total Liabilities | | | 4,605,965 | | | 2,256,694 | | | 4,981,900 | |
| | | | | | | | | | |
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 | | | 20,254,165 | | | 19,442,288 | | | 19,448,904 | |
Treasury Stock, at Cost, | | | | | | | | | | |
63,494 Shares | | | (273,219) | | | (273,219) | | | (273,219) | |
| | | | | | | | | | |
Total Stockholders’ Equity | | | 21,444,667 | | | 20,632,790 | | | 20,639,406 | |
| | | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 26,050,632 | | $ | 22,889,484 | | $ | 25,621,306 | |
3 | ||
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | FOR THE THREE MONTHS ENDED | | ||||
| | SEPTEMBER 30, | | ||||
| | 2013 | | 2012 | | ||
| | | | | | | |
Net Sales | | $ | 9,538,239 | | $ | 9,994,865 | |
| | | | | | | |
Costs and Expenses: | | | | | | | |
Cost of Goods Sold | | | 6,756,355 | | | 7,023,493 | |
Selling, General and Administrative Expense | | | 1,189,986 | | | 1,199,859 | |
Amortization Expense | | | 35,971 | | | 35,971 | |
Interest Expense | | | 6,002 | | | 3,304 | |
| | | | | | | |
Total Costs and Expenses | | | 7,988,314 | | | 8,262,627 | |
| | | | | | | |
Income from Operations | | | 1,549,925 | | | 1,732,238 | |
| | | | | | | |
Other Income (Loss) | | | 283,416 | | | (35,771) | |
| | | | | | | |
Income from Operations Before Provision for Income Taxes | | | 1,833,341 | | | 1,696,467 | |
| | | | | | | |
Provision for Income Taxes | | | 676,244 | | | 644,654 | |
| | | | | | | |
Net Income | | $ | 1,157,097 | | $ | 1,051,813 | |
| | | | | | | |
Income per Common Share (Basic and Diluted) | | $ | 2.23 | | $ | 2.02 | |
| | | | | | | |
Dividend per Common Share | | $ | 0.00 | | $ | 0.00 | |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
4 | ||
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | FOR THE NINE MONTHS ENDED | | ||||
| | SEPTEMBER 30, | | ||||
| | 2013 | | 2012 | | ||
| | | | | | | |
Net Sales | | $ | 15,315,053 | | $ | 15,848,256 | |
| | | | | | | |
Costs and Expenses: | | | | | | | |
Cost of Goods Sold | | | 11,232,573 | | | 11,325,394 | |
Selling, General and Administrative Expense | | | 2,888,544 | | | 2,816,946 | |
Amortization Expense | | | 107,914 | | | 107,914 | |
Interest Expense | | | 6,002 | | | 3,304 | |
| | | | | | | |
Total Costs and Expenses | | | 14,235,033 | | | 14,253,558 | |
| | | | | | | |
Income from Operations | | | 1,080,020 | | | 1,594,698 | |
| | | | | | | |
Other Income | | | 322,227 | | | 34,894 | |
| | | | | | | |
Income from Operations Before Provision for Income Taxes | | | 1,402,237 | | | 1,629,592 | |
| | | | | | | |
Provision for Income Taxes | | | 512,427 | | | 619,241 | |
| | | | | | | |
Net Income | | $ | 889,820 | | $ | 1,010,351 | |
| | | | | | | |
Income per Common Share (Basic and Diluted) | | $ | 1.71 | | $ | 1.94 | |
| | | | | | | |
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 NINE MONTHS ENDED | | ||||
| | SEPTEMBER 30, | | ||||
| | 2013 | | 2012 | | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | |
Net Income | | $ | 889,820 | | $ | 1,010,351 | |
Adjustments to Reconcile Net Income to | | | | | | | |
Net Cash Used in Operating Activities: | | | | | | | |
Depreciation and Amortization | | | 455,162 | | | 461,982 | |
(Increase) Decrease in: | | | | | | | |
Accounts Receivable | | | (5,468,619) | | | (5,508,548) | |
Inventories | | | (3,781,674) | | | (5,466,517) | |
Prepaid Expenses | | | (183,794) | | | (185,422) | |
Other Assets | | | (53,933) | | | (24,847) | |
Income Tax Receivable | | | 29,268 | | | - | |
Increase (Decrease) in: | | | | | | | |
Accounts Payable | | | 492,086 | | | 902,485 | |
Accrued Expense | | | (299,542) | | | (443,475) | |
Income Taxes Payable | | | - | | | (182,901) | |
| | | | | | | |
Net Cash Used in Operating Activities | | | (7,921,226) | | | (9,436,892) | |
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
Purchase of Property and Equipment | | | (240,000) | | | (206,856) | |
| | | | | | | |
Net Cash Used in Investing Activities | | | (240,000) | | | (206,856) | |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
Net Proceeds from Short-Term Debt | | | 2,156,727 | | | 2,278,838 | |
Dividends Paid | | | (77,940) | | | (103,920) | |
| | | | | | | |
Net Cash Provided by Financing Activities | | | 2,078,787 | | | 2,174,918 | |
| | | | | | | |
NET DECREASE IN CASH | | | (6,082,439) | | | (7,468,830) | |
| | | | | | | |
CASH, AT BEGINNING OF PERIOD | | | 6,384,087 | | | 7,468,908 | |
| | | | | | | |
CASH, AT END OF PERIOD | | $ | 301,648 | | $ | 78 | |
| | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | |
Cash paid for: | | | | | | | |
| | | | | | | |
Interest | | $ | 6,002 | | $ | 3,304 | |
| | | | | | | |
Income Taxes | | $ | 483,159 | | $ | 802,142 | |
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 nine months ended September 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 September 30, 2012 to conform to the classifications used for the quarter ended September 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 INCOME PER COMMON SHARE
Basic and diluted income 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 | | ||
| | September 30, | | September 30, | | ||
| | 2013 | | 2012 | | ||
Net Sales in Each Segment | | | | | | | |
| | | | | | | |
Fruit: | | | | | | | |
Sales to Unaffiliated Customers | | $ | 7,884,362 | | $ | 8,412,222 | |
| | | | | | | |
Molded Plastics: | | | | | | | |
Sales to Unaffiliated Customers | | | 1,653,877 | | | 1,582,643 | |
| | | | | | | |
Net Sales | | $ | 9,538,239 | | $ | 9,994,865 | |
| | Nine months ended | | Nine months ended | | ||
| | September 30, | | September 30, | | ||
| | 2013 | | 2012 | | ||
Net Sales in Each Segment | | | | | | | |
| | | | | | | |
Fruit: | | | | | | | |
Sales to Unaffiliated Customers | | $ | 9,099,865 | | $ | 9,646,744 | |
| | | | | | | |
Molded Plastics: | | | | | | | |
Sales to Unaffiliated Customers | | | 6,215,188 | | | 6,201,512 | |
| | | | | | | |
Net Sales | | $ | 15,315,053 | | $ | 15,848,256 | |
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)
| | September 30, | | September 30, | | ||
| | 2013 | | 2012 | | ||
Identifiable Assets of Each Segment are Listed Below: | | | | | | | |
| | | | | | | |
Fruit | | $ | 19,589,588 | | $ | 19,310,400 | |
| | | | | | | |
Molded Plastics | | | 4,404,647 | | | 4,629,462 | |
| | | | | | | |
Identifiable Assets | | | 23,994,235 | | | 23,939,862 | |
| | | | | | | |
General Corporate Assets | | | 2,056,397 | | | 1,681,444 | |
| | | | | | | |
Total Assets | | $ | 26,050,632 | | $ | 25,621,306 | |
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
As reported in the second quarter filing of this year, 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, Paradise, Inc. filed a claim with the Deepwater Horizon Economic and Property Program (the “Settlement Program”) arising out of damages suffered as a result of the Deepwater Horizon Incident. Upon review by the claims administrator of the Settlement Program and after a 30 day period in which BP Exploration & Production, Inc. could file a protest contesting this amount, a settlement check for $277,546 was awarded to Paradise, Inc. Funds were received on August 30, 2013 and this amount is reflected in Other Income on the Company’s consolidated Statements of Operations.
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 for the previous year of 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 from the eight to ten weeks 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. produces 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 Nine Months
Paradise, Inc.’s fruit segment net sales for the first nine months of 2013 decreased 5.7% to $9,099,865 compared to $9,646,744 for the similar nine months reporting period of 2012. This decrease is due to timing differences in the receipt of customers’ orders and the corresponding shipping dates for delivery of the Company’s retail glace’ fruit products. Specifically, several major customers have delayed their orders into October of 2013 as compared to September of 2012. Paradise, Inc.’s management has consistently disclosed that interim filings are not reliable financial indicators of year-end performance. Only a full year’s accounting which removes the timing issue from the seasonal sale of glace’ fruit will provide the necessary financial information to determine the Company’s overall success.
Paradise Plastics, Inc.’s net sales to unaffiliated customers during the first nine months of 2013, $6,215,188 remained consistent with the similar reporting period of 2012, $6,201,512 as increased demand for plastics products related to the housing market continued to offset a decline in the sales of custom molding injection orders. As mentioned in the second quarter filing of this year, the Company is assisting one of its long term customers in transitioning into a new custom mold in order to comply with the changing requirements of one of their clients. While Paradise and its customer continue to work together in developing and testing of a prototype mold that will meet the requirements of their client, no estimated date of completion can be stated as of the date of this filing.
Consolidated cost of sales, as a percentage of net sales, increased 1.9% during the first nine months of 2013 compared to the similar reporting period of 2012. As reported in previous filings this year, Paradise, Inc. received and processed approximately 2.8 million 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, subject to specific size and quality requirements before being processed and placed into inventory, had a higher rejection rate than in the previous year. This reduction in the amount of raw fruit materials processed resulted in a higher percentage of cost of sales.
Selling, general and administrative expenses for the first nine months of 2013 increased 2.5% compared to the previous year’s reporting period of 2012. The increase is attributable to a more concentrated effort to promote the Company’s full line of glace’ fruit products including dried fruit snacks via food and trade shows during the second and third quarters of 2013.
Paradise, Inc.’s interest expense on its revolving line of credit for the nine months ended September 30, 2013 was $6,002 compared to $3,304 for September 30, 2012. As reported in previous filings, Paradise, Inc. renewed its revolving line of credit on June 23, 2013 for a two year period. 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 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%.
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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
Other Income for the nine months ended September 30, 2013 was $322,227 compared to $34,894 for the nine months ended September 30, 2012. As mentioned in previous filings, during 2012, Paradise, Inc. filed a claim with the Deepwater Horizon Economic and Property Program (the “Settlement Program”) arising out of damages suffered as a result of the Deepwater Horizon Incident. Upon review by the claims administrator of the Settlement Program and after a 30 day period in which BP Exploration & Production, Inc. could file a protest contesting this amount, a settlement check for $277,546 was awarded to Paradise, Inc. Funds were received on August 30, 2013 and this amount is reflected in Other Income on the Company’s consolidated Statements of Operations.
Inventory as of September 30, 2013 totaled $12,638,053 compared to $11,663,034 as of September 30, 2012. The increase of $975,019 is primarily due to the fact that, several major glace’ fruit customers have moved their ordering requirements to October of 2013 compared to September, 2012.
Paradise, Inc. finances 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 September 30, 2013 and December 31, 2012, we had $301,648 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 up to 50% of the Company’s eligible inventory from January 1 to May 31 and 60% of the Company’s eligible inventory, of which $2,602,601 was outstanding at September 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 $69,992 was outstanding at September 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 to $7,921,226 for the nine months ended September 30, 2013 compared to $9,436,892 for the nine months ended September 30, 2012. The primary reasons for this decrease are as follows; income tax payments made during the first nine months for 2013 were $319,983 less than the first nine months of 2012 as well as payments for the purchase of inventory decreased $1,684,843.
Summary
Paradise Inc.’s consolidated net sales decreased $533,203 representing a decline of 3.4% for the first nine months of 2013 compared to the similar reporting period of 2012. This decrease is primarily timing in nature as several existing glace’ fruit customers deferred their orders to the beginning of the fourth quarter of 2013 compared to the third quarter of 2012.
However, as mentioned and disclosed in all previous interim filings, due to the highly seasonal nature of the Company’s primary product, glace’ fruit, 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
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 nine months ended September 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 September 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 September 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 |
| | |
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.
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