FORM 10-Q
______________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
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. Yesx
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). Yesx
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¨
NoxThe number of shares outstanding of each of the issuer’s classes of common stock as of November 14, 2013May 15, 2014 was 519,600 shares.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013
INDEX
PAGE | |||
CONSOLIDATED BALANCE SHEETS: | 2 | ||
As of | 2 | ||
Liabilities and Stockholders’ Equity | |||
As of March 31, 2014 (Unaudited), December 31, 2013 and March 31, 2013 (Unaudited) | 3 | ||
4 | |||
For the | 4 | ||
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED): | 5 | ||
For the | |||
12 | |||
ITEM 4. | |||
CONTROLS AND PROCEDURES | 12 | ||
PART II. | OTHER INFORMATION | ||
ITEMS 1 – 6. | 13 | ||
14 |
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
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)
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 |
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)
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 |
FOR THE THREE MONTHS ENDED | ||||||||
MARCH 31, | ||||||||
2014 | 2013 | |||||||
Net Sales | $ | 3,100,755 | $ | 3,061,604 | ||||
Costs and Expenses: | ||||||||
Cost of Goods Sold | 2,477,260 | 2,601,379 | ||||||
Selling, General and Administrative Expense | 897,559 | 884,858 | ||||||
Amortization Expense | 35,971 | 35,971 | ||||||
Total Costs and Expenses | 3,410,790 | 3,522,208 | ||||||
Loss from Operations | (310,035 | ) | (460,604 | ) | ||||
Other Income | 40,262 | 101,600 | ||||||
Loss Before Income Taxes | (269,773 | ) | (359,004 | ) | ||||
Income Tax Benefit | 107,910 | 134,454 | ||||||
Net Loss | $ | (161,863 | ) | $ | (224,550 | ) | ||
Loss per Common Share (Basic and Diluted) | $ | (0.31 | ) | $ | (0.43 | ) | ||
Dividend per Common Share | $ | 0.11 | $ | 0.15 |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
4 |
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 |
FOR THE THREE MONTHS ENDED | ||||||||
MARCH 31, | ||||||||
2014 | 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net Loss | $ | (161,863 | ) | $ | (224,550 | ) | ||
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
Depreciation and Amortization | 150,277 | 151,237 | ||||||
Decrease (Increase) in: | ||||||||
Accounts Receivable | 902,300 | 150,625 | ||||||
Inventories | (1,760,164 | ) | (1,974,044 | ) | ||||
Prepaid Expenses and Other Current Assets | 78,846 | 145,778 | ||||||
Income Tax Receivable | (107,910 | ) | (134,454 | ) | ||||
Other Assets | (11,907 | ) | 23,958 | |||||
Increase (Decrease) in: | ||||||||
Accounts Payable | 751,093 | 949,169 | ||||||
Accrued Liabilities | (671,209 | ) | (785,685 | ) | ||||
Net Cash Used in Operating Activities | (830,537 | ) | (1,697,966 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of Property and Equipment | (22,451 | ) | (153,335 | ) | ||||
Net Cash Used in Investing Activities | (22,451 | ) | (153,335 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net Proceeds from Short Term Debt | 359,545 | 283,920 | ||||||
Net Cash Provided by Financing Activities | 359,545 | 283,920 | ||||||
NET DECREASE IN CASH | (493,443 | ) | (1,567,381 | ) | ||||
CASH, AT BEGINNING OF PERIOD | 5,916,366 | 6,384,087 | ||||||
CASH, AT END OF PERIOD | $ | 5,422,923 | $ | 4,816,706 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid for: | ||||||||
Income Tax | $ | - | $ | - | ||||
Noncash financing activity: | ||||||||
Dividends Declared | $ | 57,156 | $ | 77,940 |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
5 |
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 allonly the adjustments and accruals of a normal recurring nature that management believes areis 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, 2012.2013. 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%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 ninethree months ended September 30, 2013March 31, 2014 are not necessarily indicative of the results that may be expected for the current year.
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 incomeloss per common share isare based on the weighted average number of shares outstanding and assumed to be outstanding of 519,600.519,600. There are no dilutive securities outstanding.
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 |
March 31, | March 31, | |||||||
2014 | 2013 | |||||||
Net Sales in Each Segment | ||||||||
Fruit: | ||||||||
Sales to Unaffiliated Customers | $ | 818,613 | $ | 824,737 | ||||
Molded Plastics: | ||||||||
Sales to Unaffiliated Customers | 2,282,142 | 2,236,867 | ||||||
Net Sales | $ | 3,100,755 | $ | 3,061,604 |
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.
7 |
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 |
NOTE 4 | BUSINESS SEGMENT DATA (CONTINUED) |
March 31, | March 31, | |||||||
2014 | 2013 | |||||||
Identifiable Assets of Each Segment are Listed Below: | ||||||||
Fruit | $ | 10,919,669 | $ | 11,106,540 | ||||
Molded Plastics | 4,888,865 | 5,605,977 | ||||||
Identifiable Assets | 15,808,534 | 16,712,517 | ||||||
General Corporate Assets | 7,334,793 | 6,399,818 | ||||||
Total Assets | $ | 23,143,327 | $ | 23,112,335 |
Identifiable assets by segment are those assets that are principally used in the operations of each segment. General corporate assets are principally cash and land and buildings, and income tax assets.
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 |
Forward–Looking 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%65.6 % of total net sales for the previous year of 2012.during 2013. 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 theduring an eight to ten weeksweek 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. producesproducing 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.
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 MonthsQuarter
Paradise, Inc.’s fruit segment net sales of $818,613 for the first nine monthsquarter 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 gross sales to unaffiliated customers for the first quarter of 2014 were $2,282,142 compared to $2,236,867 for the similar reporting period of 2013, representing a 2.0% increase. Additional demand from existing long-term customers within the commercial and home construction industry continued to offsetincrease, offsetting a decline in injection molding customer orders received and shipped during the salesfirst quarter 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 netgross sales increased 1.9% duringdecreased 5.1% for the first nine monthsquarter of 20132014 compared to the similar reporting period of 2012. As reported2013. The primary reason for this change was related to an increase in previous filings this year,the number of strawberries processed during the first quarter of 2014. Paradise, Inc. received and processed approximately 2.8 million less3,490,373 pounds of strawberries through its facilitiescompared to 2,943,627 pounds for the first quarter of 2013. As the amount of factory overhead is relatively fixed during the first six monthsquarter of the year, an increase in production of any raw materials into finished goods will yield a higher gross margin and a corresponding lower cost of sales. However, with more than ninety-five percent (95%) of the Company’s annual production of glace’ fruit yet to commence, it is too early to project or forecast any realistic changes in cost of sales for 2014.
Selling, general & administrative expenses increased 1.4% to $897,559 for the first quarter of 2014 compared to $884,858 for the similar reporting period of 2013 as increases in health care premiums outpaced savings in areas such as travel and advertising expenses.
Other Significant Items
Other Income for the first quarter of 2014 totaled $40,262 compared to $101,600 for the similar reporting period of 2013. Other Income is periodic sales of recycled plastics materials along with changes in the cash surrender value of two insurance policies owned by the company on behalf of two senior executives.
Inventory as of March 31, 2014 was $10,597,962 compared to $10,830,423 representing a decrease of $223,461 as shipments from suppliers of raw fruit commodities, which may fluctuate based upon many factors common to agricultural products, were received in lesser quantity during the first quarter of 2014 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.
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 (Continued)
Short Term Debt and Accounts Payable combined balances as of March 31, 2014 totaled $1,418,965 compared to $2,124,022 for the nine months ended September 30, 2013 was $322,227 compared to $34,894similar reporting period 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.
We finance our ongoing operations primarily with cash provided by our operating activities which are seasonal in nature.activities. 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, 2013March 31, 2014 and December 31, 2012,2013, we had $301,648$5.4 million and $6,384,087,$5.9 million, 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% from June 1 to December 31 of the Company’s eligible inventory,each year, of which $2,602,601$0 was outstanding at September 30, 2013March 31, 2014 and $0 at December 31, 2012.2013. Within this agreement, there are letters of credit with a limit of $1,200,000, of which $69,992$359,545 was outstanding at September 30, 2013March 31, 2014 and $515,866$0 at December 31, 2012.2013. The line of credit agreement expires inon June 23, 2015. Net cash used in operating activities decreased to $7,921,226from $1,697,966 for the nine monthsquarter ended September 30,March 31, 2013 compared to $9,436,892$830,537 for the nine monthsquarter ended September 30, 2012.March 31, 2014. The primary reasonsreason for this decrease are as follows; income taxis due to Accounts Receivable payments madereceived from Paradise, Inc.’s customers during the first nine months for 2013quarter of 2014 were $319,983 less$751,675 more than the first nine monthssimilar reporting period of 2012 as well as payments2013. Lastly, net cash provided by financing activities increased from $283,920 for the purchasequarter ended March 31, 2013 to $359,545 for the quarter ended March 31, 2014 due to timing 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 ninethree months of 2013ended March 31, 2014 totaled $3,100,755 compared to $3,061,604 for the similar reporting period of 2012. This decrease is primarily timing in nature as several existing glace’ fruit customers deferred their orders to the beginning2013, representing an increase of the fourth quarter of 2013 compared to the third quarter of 2012.
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, 2012.2013. There have been no material changes to our critical accounting estimates during the ninethree months ended September 30, 2013.
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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) |
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,March 31, 2014, 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.
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 |
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 |
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
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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