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 SeptemberJune 30, 20162017
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 W. 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 or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | Non-accelerated filer | ¨ | Smaller reporting company | x |
Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes¨ Nox
The number of shares outstanding of each of the issuer’s classes of common stock as of NovemberAugust 14, 20162017 was 519,600 shares.
PARADISE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20162017
INDEX
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, | AS OF | AS OF | ||||||||||||||||||||
2016 | DECEMBER 31, | 2015 | JUNE 30, | AS OF | JUNE 30, | |||||||||||||||||||
(UNAUDITED) | 2015 | (UNAUDITED) | 2017 | DECEMBER 31, | 2016 | |||||||||||||||||||
(UNAUDITED) | 2016 | (UNAUDITED) | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||||||||||
Cash | $ | 1,138,700 | $ | 8,791,938 | $ | 1,329,580 | $ | 3,839,389 | $ | 9,240,638 | $ | 3,226,323 | ||||||||||||
Accounts Receivable, | ||||||||||||||||||||||||
Less, Allowances of $0 (09/30/16), | ||||||||||||||||||||||||
$1,066,314 (12/31/15) and $0 (09/30/15) | 6,378,274 | 2,182,306 | 6,678,038 | |||||||||||||||||||||
Less, Allowances of $0 (06/30/17), $1,215,153 (12/31/16) and $0 (06/30/16) | 613,130 | 2,108,608 | 1,123,400 | |||||||||||||||||||||
Inventories: | ||||||||||||||||||||||||
Raw Materials | 7,605,280 | 5,114,439 | 6,426,620 | 9,097,142 | 5,254,103 | 8,354,595 | ||||||||||||||||||
Work in Process | 333,884 | 785,711 | 487,769 | 414,639 | 1,026,657 | 455,950 | ||||||||||||||||||
Supplies | 161,258 | 161,258 | 168,275 | 165,413 | 165,446 | 161,258 | ||||||||||||||||||
Finished Goods | 3,897,230 | 2,118,261 | 4,352,239 | 4,201,945 | 1,858,827 | 4,772,853 | ||||||||||||||||||
Income Tax Asset | - | - | 265,829 | |||||||||||||||||||||
Deferred Income Tax Asset | 241,834 | 241,834 | 277,291 | |||||||||||||||||||||
Income Tax Receivable | 652,192 | - | 429,222 | |||||||||||||||||||||
Prepaid Expenses and Other Current Assets | 455,684 | 318,250 | 437,130 | 431,890 | 296,851 | 436,954 | ||||||||||||||||||
Total Current Assets | 20,212,144 | 19,713,997 | 20,422,771 | 19,415,740 | 19,951,130 | 18,960,555 | ||||||||||||||||||
Property, Plant and Equipment, Less, Accumulated Depreciation of $18,557,477 (09/30/16), $18,294,592 (12/31/15) and $18,192,229 (09/30/15) | 3,919,133 | 3,924,480 | 3,753,580 | |||||||||||||||||||||
Property, Plant and Equipment, | ||||||||||||||||||||||||
Less, Accumulated Depreciation of $18,857,109 (06/30/17), $18,650,822 (12/31/16) and $18,461,580 (06/30/16) | 4,433,640 | 4,162,636 | 3,928,048 | |||||||||||||||||||||
Goodwill | 413,280 | 413,280 | 413,280 | 413,280 | 413,280 | 413,280 | ||||||||||||||||||
Customer Base and Non-Compete Agreement | - | 62,092 | 93,563 | |||||||||||||||||||||
Other Assets | 381,149 | 392,426 | 471,978 | 339,726 | 393,994 | 370,941 | ||||||||||||||||||
TOTAL ASSETS | $ | 24,925,706 | $ | 24,506,275 | $ | 25,155,172 | $ | 24,602,386 | $ | 24,921,040 | $ | 23,672,824 |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
2 |
3 |
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED | ||||||||
SEPTEMBER 30, | ||||||||
2016 | 2015 | |||||||
Net Sales | $ | 8,884,152 | $ | 8,861,873 | ||||
Costs and Expenses: | ||||||||
Cost of Goods Sold | 6,173,066 | 6,453,619 | ||||||
Selling, General and Administrative Expense | 1,098,845 | 1,147,469 | ||||||
Amortization Expense | 2,000 | 32,471 | ||||||
Total Costs and Expenses | 7,273,911 | 7,633,559 | ||||||
Income from Operations | 1,610,241 | 1,228,314 | ||||||
Other Expenses | (30,856 | ) | (24,967 | ) | ||||
Income from Operations Before Income Taxes | 1,579,385 | 1,203,347 | ||||||
Provision for Income Taxes | 631,753 | 471,256 | ||||||
Net Income | $ | 947,632 | $ | 732,091 | ||||
Income per Common Share (Basic and Diluted) | $ | 1.82 | $ | 1.41 | ||||
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)
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 | FOR THE SIX MONTHS ENDED | |||||||||||||||
SEPTEMBER 30, | JUNE 30, | |||||||||||||||
2016 | 2015 | 2017 | 2016 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net Income | $ | 653,271 | $ | 29,396 | ||||||||||||
Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities: | ||||||||||||||||
Net Loss | $ | (690,373 | ) | $ | (294,361 | ) | ||||||||||
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||||||||||
Depreciation and Amortization | 367,329 | 416,548 | 206,392 | 266,944 | ||||||||||||
(Increase) Decrease in: | ||||||||||||||||
Decrease (Increase) in: | ||||||||||||||||
Accounts Receivable | (4,195,968 | ) | (3,631,369 | ) | 1,495,478 | 1,058,906 | ||||||||||
Inventories | (3,817,983 | ) | (3,949,994 | ) | (5,574,106 | ) | (5,564,987 | ) | ||||||||
Prepaid Expenses | (137,434 | ) | (130,179 | ) | ||||||||||||
Prepaid Expenses and Other Current Assets | (135,039 | ) | (118,704 | ) | ||||||||||||
Income Tax Receivable | (652,192 | ) | (352,932 | ) | ||||||||||||
Other Assets | 5,166 | (30,605 | ) | 54,268 | 17,374 | |||||||||||
Income Tax Asset | - | (265,958 | ) | |||||||||||||
Increase (Decrease) in: | ||||||||||||||||
Accounts Payable | 101,874 | 630,684 | 64,166 | 204,322 | ||||||||||||
Accrued Liabilities | 33,227 | (150,802 | ) | (572,388 | ) | (737,678 | ) | |||||||||
Net Cash Used in Operating Activities | (6,990,518 | ) | (7,082,279 | ) | (5,803,794 | ) | (5,521,116 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchase of Property and Equipment | (293,779 | ) | (591,885 | ) | (477,396 | ) | (204,309 | ) | ||||||||
Net Cash Used in Investing Activities | (293,779 | ) | (591,885 | ) | (477,396 | ) | (204,309 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds from Short Term Debt | 1,052,779 | 820,589 | ||||||||||||||
Payments on Short Term Debt | (863,527 | ) | (149,112 | ) | (42,938 | ) | (582,839 | ) | ||||||||
Proceeds from Short Term Debt | 572,526 | 1,422,002 | ||||||||||||||
Dividends Paid | (77,940 | ) | (57,156 | ) | (129,900 | ) | (77,940 | ) | ||||||||
Net Cash Provided by (Used in) Financing Activities | (368,941 | ) | 1,215,734 | |||||||||||||
Net Cash Provided by Financing Activities | 879,941 | 159,810 | ||||||||||||||
NET DECREASE IN CASH | (7,653,238 | ) | (6,458,430 | ) | (5,401,249 | ) | (5,565,615 | ) | ||||||||
CASH, AT BEGINNING OF PERIOD | 8,791,938 | 7,788,010 | 9,240,638 | 8,791,938 | ||||||||||||
CASH, AT END OF PERIOD | $ | 1,138,700 | $ | 1,329,580 | $ | 3,839,389 | $ | 3,226,323 | ||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid for: | ||||||||||||||||
Income Taxes | $ | 353,346 | $ | 268,750 | ||||||||||||
Income Tax | $ | 190,000 | $ | 344,000 |
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, 2015.2016. 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 ninesix months ended SeptemberJune 30, 20162017 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 three and ninesix months ended SeptemberJune 30, 20152016 to conform to the classifications used for the three and ninesix months ended SeptemberJune 30, 2016.2017.
NOTE 2 | IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,Revenue from Contracts with Customers,which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard will be effective for the Company on January 1, 2018, which is the effective date for public companies. Early application is permitted as of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU No. 2014-09 will have on its financial statements and related disclosures. The Company hasis finalizing reviews and working on implementing the process, policy and disclosure changes that will go into effect January 1, 2017. At this time, the Company does not yet selectedexpect a transition method nor has it determinedmaterial financial impact from adopting the effectnew standard.
In April 2015, the FASB issued Accounting Standards Update No. 2015-03,Simplifying the Presentation of Debt Issuance Costs(“ASU2015-03”). The standard requires that debt issuance costs related to a recognized debt liability be presented in the standardbalance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this standards update. The Company evaluated this ASU and began early adoption beginning with the annual period ended December 31, 2016. The adoption of this ASU did not have a material impact on its consolidatedthe Company’s financial statements.position or results of operations.
7 |
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2 | IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED) |
In July 2015, the FASB issued ASU No. 2015-11,Simplifying the Measurement of Inventory, which amends FASB ASU Topic 330,Inventory. This ASU requires entities to measure inventory at the lower of cost or net realizable value and eliminates the option that currently exists for measuring inventory at market value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This ASU should be applied prospectively with earlier application permitted. The Company does not anticipate the adoption of this ASU todid not have a material impact on the Company’s financial position or results of operations.
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In November 2015, the FASB issued ASU No. 2015-17,Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes,which simplifies the presentation of deferred income taxes. The ASU provides presentation requirements to classify deferred tax assets and liabilities as noncurrent in a classified balance sheet. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for any interim and annual financial statements that have not yet been issued. The new guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company does not expect the adoption of this standard todid not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842)(ASU 2016-02). Under ASU No. 2016-2, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU No. 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company does not expectcontinues to make progress in their due diligence and assessment of the adoptionimpact of thisthe new standard to have a material impactacross its operations and the consolidated financial statements, which will consist primarily of recording lease assets as liabilities on the Company’s consolidated financial statements.balance sheet for operating leases.
Except as noted above, the Company’s management does not believe that 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 |
Basic and diluted incomeloss 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.
8 |
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, | Three months ended | Three months ended | |||||||||||||
2016 | 2015 | June 30, | June 30, | |||||||||||||
2017 | 2016 | |||||||||||||||
Net Sales in Each Segment | ||||||||||||||||
Fruit: | ||||||||||||||||
Sales to Unaffiliated Customers | $ | 7,389,005 | $ | 7,102,818 | $ | 343,856 | $ | 401,378 | ||||||||
Molded Plastics: | ||||||||||||||||
Sales to Unaffiliated Customers | 1,495,147 | 1,759,055 | 1,007,593 | 1,701,883 | ||||||||||||
Net Sales | $ | 8,884,152 | $ | 8,861,873 | $ | 1,351,449 | $ | 2,103,261 | ||||||||
Nine months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | Six months ended | Six months ended | |||||||||||||
2016 | 2015 | June 30, | June 30, | |||||||||||||
2017 | 2016 | |||||||||||||||
Net Sales in Each Segment | ||||||||||||||||
Fruit: | ||||||||||||||||
Sales to Unaffiliated Customers | $ | 8,643,663 | $ | 8,409,947 | $ | 1,276,375 | $ | 1,254,658 | ||||||||
Molded Plastics: | ||||||||||||||||
Sales to Unaffiliated Customers | 5,306,706 | 5,622,810 | 2,523,674 | 3,811,559 | ||||||||||||
Net Sales | $ | 13,950,369 | $ | 14,032,757 | $ | 3,800,049 | $ | 5,066,217 |
9 |
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 | BUSINESS SEGMENT DATA (CONTINUED) |
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.
September 30, | September 30, | June 30, | June 30, | |||||||||||||
2016 | 2015 | 2017 | 2016 | |||||||||||||
Identifiable Assets of Each Segment are Listed Below: | ||||||||||||||||
Fruit | $ | 17,678,419 | $ | 16,957,811 | $ | 14,445,847 | $ | 13,556,927 | ||||||||
Molded Plastics | 4,399,853 | 4,887,629 | 4,125,240 | 5,002,643 | ||||||||||||
Identifiable Assets | 22,078,272 | 21,845,440 | 18,571,087 | 18,559,570 | ||||||||||||
General Corporate Assets | 2,847,434 | 3,309,732 | 6,031,299 | 5,113,254 | ||||||||||||
Total Assets | $ | 24,925,706 | $ | 25,155,172 | $ | 24,602,386 | $ | 23,672,824 |
Identifiable assets by segment are those assets that are principally used in the operations of each segment. General corporate assets are principally cash, prepaid expenses, other current assets, land and income tax assets.
NOTE 5 | SUBSEQUENT NOTE |
On July 28, 2017, Paradise, Inc. renewed its revolving line of credit with SunTrust Bank through July 31, 2019. This renewal provides for a maximum limit of $12 million and a borrowing limit of 80% of the Company’s eligible receivables plus the lesser of $6,000,000 or 50% of the Company’s eligible inventory from January 1 to May 31 and 60% from June 1 to December 31 of each year. Within this agreement are letters of credit with a limit of $1,750,000. The agreement is secured by all of the assets of the Company and 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 plus 1.75%.
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 |
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 68.3%68.7% of total net sales for the previous year of 2015.during 2016. 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 for a period ofduring 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, may resultresults 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.
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) |
The First Nine MonthsSecond Quarter
Paradise, Inc.’s fruit segment net sales for the first ninesix months of 2016 increased 2.8% to $8,643,6632017 totaled $1,276,375 compared to $8,409,947net sales of $1,254,658 for the similar nine month reporting period of 2015. This2016 representing a slight increase is primarily due to timing differences inof $21,717 or 1.7%. The fruit segment has two primary products for sale during the receipt of customers’ orders and the corresponding shipping dates for deliveryfirst six months of the year. The first product, glace’ fruitcake ingredients, is produced and sold in bulk quantities to manufacturing bakeries and supermarkets throughout the United States leading up to the traditional Easter holiday season. With a decline in sales received and shipped during the first six months of 2017 compared to the similar reporting period of 2016 net sales decreased to $627,442 from $799,642. The other fruit segment product for sale is finished strawberry items produced exclusively for a local distributor during a short period of time beginning in early March and running through April of each year. As in previous years, Paradise, Inc., based on a negotiated price (i.e. tolling fee), will receive and process fresh strawberries through its production facilities on behalf of this distributor. With favorable weather and market conditions present during this short period of time, net sales to this local distributor totaled $648,933 for the first six months of 2017 compared to $455,016 for the first six months of 2016. It is important to mention the Company’s primary source of revenue is the sale of glace’ fruitcake ingredients to its retail customers for the traditional holiday baking seasons of Thanksgiving and Christmas. Sales to retail customers account for over 80% of all annual fruit segment sales. Thus, until the sales of retail glace’ fruit products. Changes in datesfruitcake products are realized during the last quarter of opening ordersthe year, no trends or forecasts may be ascertained from customers between interim reporting periods will have a direct impact on net revenue comparisons. Paradise, Inc. recognizes net sales generally upon receipt of its products by its customers. Thus, as merchandise is shipped and received by its customers during different interim reporting periods, timing differences in reported net revenue will occur. Management has consistently disclosed that interim filings are not reliable financial indicators of year-end performance. Only after a full year’s selling season is completed which takes into consideration factors such as the timing of initial orders, product placement on supermarket shelves and consumer demand for holiday fruitcake ingredients, will the Company have any ability to determine whether its sales and marketing effortsachieved for the current year were successful.first six months of the year.
Paradise Plastics, Inc., (Paradise Plastics) a wholly owned company of Paradise, Inc., which accounted for 38%31.3% of total net sales to unaffiliated customers decreased by 5.6% tofor the previous year, generated net sales of $5,306,706$2,523,674 for the ninesix months ended SeptemberJune 30, 20162017 compared to $5,622,810$3,811,559 for the similar reporting period of 2015. While sales to customers2016. This represents a decrease of vacuum forming plastics parts within the housing market increased by 5% for the current reporting period over the similar reporting period of 2015, it was not enough net revenue to offset a recent decline in sales related to a long term customer within the Company’s thermoforming operations. As mentioned in previous filings,$1,287,885 or 33.8%. Paradise Plastics Inc. produces various types of custom molded plastics parts for its customers which are then assembled into finished products by its customers. Thus, changes in demandcustomers for sale to the end user. In many cases, continued production and increased sales for these finish productsparts are based on their success achieved by the end user will haveuser. However, in some cases, a directchange in production or product design may impact on ourthe continuation of these sales. As such, it was disclosed in the past two filings that beginning first quarter of 2017, a major plastics customer decided to transfer production of custom molded parts produced by thermoforming to an out of state supplier who could produce these parts via injection molding. The major benefit to our customer was the dateability to significantly lower production cost per part. These parts were previously thermoformed at Paradise Plastics facilities over the past nine years. Paradise Plastics offered to construct a new on-site building as well as install necessary injection molding equipment to continue production of filing, management is not able to predict whetherthese parts, however, the recent decline in sales will continue.
Consolidated costoffer was declined. With production of sales as a percentage of overallthese parts complete, net sales decreased 6.0%totaled $120,625 for the first ninesix months of 20162017 compared to $1,757,250 for the similar reporting periodentire twelve months of 2015.2016. This is less than the 10.4%represents a decrease in cost of sales reported during the June 30, 2016 filing, however,$1,636,625. Reacting to this decrease is still due to the following two reasons. First, a greater percentagesituation, management began an orderly reduction of vacuum forming plastics parts ordered and shippedhourly personnel associated with this loss of business during the first nine monthsquarter of 2016 vs. 2015 were2017. Now with the reduction in hourly personnel in place and along with the recent planned retirement of higher gross margins. Secondly,a Senior Vice-President Plastics, management is confident it will achieve cost savings in excess of $250,000 by year-end. It is also important to mention that Paradise Plastics is still producing other custom molding parts for this long term customer and is continuing to aggressively market its custom molding capabilities throughout the fruit segment, after not commencing brining operationsSoutheast in order to replace this business as well as expand its current base of orange peel during the first nine months of 2015, produced 2.9 million lbs. of brined orange peel inventory during the first nine months of 2016. With more than an adequate amount of brined orange peel in the Company’s inventory as of January 1, 2015, brining operations for orange peel were postponed for 2015. Thus, the increase in orange peel production during the first nine months of 2016 allocated over a relatively fixed amount of factory overhead (i.e.: insurance, utilities, depreciation and taxes) hadbusiness. Management continues to closely monitor the impact this loss of reducing cost of sales as of September 30, 2016 compared to September 30, 2015. However, it is important to understand that until a full year’s production cycle is completed, the Company will not be able to determine to what extent the additional production mentioned abovebusiness will have on costits operations throughout the remainder of sales as it relates2017 in order to overall sales.
Inventory as of September 30, 2016 totaled $11,997,652 compareddetermine if any additional changes to $11,434,903 as of September 30, 2015 representing an increase of $562,749. This represents an increase of 4.9% and is attributable to the increased orange peel production discussed in the cost of sales section above.
Selling, general & administrative expenses for the first nine months of 2016 totaled $2,774,766 compared to $2,979,115 representing a decrease of $204,349 or 6.9% and is primarily related to the retirement of three senior managers during late 2015.operations are warranted.
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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) |
The First Nine MonthsSecond Quarter (Continued)
Consolidated cost of sales as a percentage of net sales increased 15.0% for the six months of 2017 compared to the similar reporting period of 2016 primarily as variable cost associated with the decrease in plastics sales mentioned in the preceding paragraph outpaced the reduction in labor expenses to produce these plastic parts during the first six months of operations. Furthermore, fruit segment cost of sales, which accounts for almost 70% of overall cost of sales does not commence production until June 1st of each year. Thus, with the majority of retail production yet to begin for 2017, no overall determination of cost of sales as a percentage of sales can be forecast as of the date of this filing.
Selling, general & administrative expenses for the first six months of 2017 decreased 11.9% to $1,476,657 from $1,675,921 as Paradise, Inc. continues to receive payroll savings due to fewer employees working within these departments of the Company.
Other Significant Items
Other Income for the six months of 2017 totaled $46,715 compared to $50,702 for the similar reporting period of 2016. Other Income is periodic sales of recycled plastics materials from time to time along with changes in the cash surrender value of two insurance policies owned by the Company on behalf of two senior executives. Paradise, Inc. financesis the beneficiary as to the premiums paid on behalf of these two policies.
Inventory levels were consistent at June 30, 2017 compared to June 30, 2016. Inventory values were $13,879,139 and 13,744,656, respectively. From time to time, during the first six months of any year, timing differences in the level of inventory on hand may occur as factors related to harvest and market conditions could impact the delivery of raw fruitcake ingredients that are ordered from as far away as Southeast Asia. As such, timing of overseas delivery dates for fruit inventory did have an impact of increasing the level of fruit segment inventory by approximately $700,000 which more than offset a decrease in the level of plastics inventory of over $600,000 due to the decline in plastics sales.
Short Term Debt and Accounts Payable combined balances are largely comprised of liabilities for raw fruit and plastics materials and totaled $1,925,641 as of June 30, 2017 compared to $1,635,999 for the similar reporting period for 2016. These two account balances are directly related to the increase in fruit inventory levels on hand as of June 30, 2017 and June 30, 2016 as terms for repayment may extend up to six months from receipt.
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 SeptemberJune 30, 20162017 and December 31, 2015,2016, we had $1,138,700$3.8 million and $8,791,938,$9.2 million, respectively, in cash. The decrease in cash during the first six months of 2017 of $5.4 million is consistent with all prior years as we will continue to use available cash reserves until we start receiving payments from fruit customers no earlier than the fourth quarter of the year. 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 60%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 SeptemberJune 30, 20162017 and $0 at December 31, 2015.2016. Within this agreement, there are letters of credit with a limit of $1,750,000, of which $291,838$1,052,779 was outstanding at SeptemberJune 30, 20162017 and $582,839$42,938 at December 31, 2015.2016. The line of credit agreement expires inon July 2017. Net cash decreased by $7,653,238 for the nine months ended September 30, 2016 compared to $6,458,430 for the nine months ended September 30, 2015. The primary reason for this decrease in cash for the first nine months of 2016 compared to 2015 was the earlier repayment of short-term debt of just over $1.0 million as of September 30, 2016.31, 2019.
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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) |
Summary
Paradise, Inc.’s consolidated net sales decreased slightly to $13,950,369 for the six months ended June 30, 2017 were $3,800,049 compared to $5,066,217 for the similar reporting period of 2016, representing a decrease of 25.0%. This decrease, as mentioned in previous filings as well as discussed above, is specifically related to the decision by a major plastics customer to change the design method and supplier for production of custom molded parts from thermoforming to injection molding during the first ninequarter of 2017. Correspondingly, cost of sales increased 15% as the decrease in plastics sales outpaced the necessary labor cost reductions that were fully implemented during the second quarter of 2017. Selling, general and administrative expenses continued trend downward during the first six months of 20162017 compared to $14,032,757the similar reporting period of 2016 as savings are being achieved from less sales and administrative personnel on hand. Thus, the combination of these events, after applying income tax benefits of $463,476 and $196,240, respectively, resulted in consolidated losses of $(690,373) for the first ninesix months ending June 30, 2017 compared to $(294,361) for the six months ending June 30, 2016.
However, as in all previously interim filings, it’s important to note that with less than 10% of 2015annual fruit segment net sales processed and shipped as an increase in the earlier shipmentof June 30, 2017 and based on historically sales data which indicates that more than 80% of the Company’s holiday segmentannual fruit segments products was offset by a downturn in thermoforming plastics partssegment’s sales will occur during the third quartermonths of 2016. However,September through November of each year, no realistic forecast or trend as mentioned and disclosed in all previous interim filings, due to the highly seasonal nature of the Company’s primary revenue source, glace’ fruit sales, no meaningful financial analysisyear end results can be developed from Paradise, Inc.’s interim reporting results. Only a full year’s accountingas of revenue and expenses will provide the necessary information to determine the Company’s overall financial performance.date of this filing.
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, 2015.2016. There have been no material changes to our critical accounting estimates during the ninesix months ended SeptemberJune 30, 2016.2017.
Impact of Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,Revenue from Contracts with Customers,which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard will be effective for the Company on January 1, 2018, which is the effective date for public companies. Early application is permitted as of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU No. 2014-09 will have on its financial statements and related disclosures. The Company hasis finalizing reviews and working on implementing the process, policy and disclosure changes that will go into effect January 1, 2017. At this time, the Company does not yet selectedexpect a transition method nor has it determinedmaterial financial impact from adopting the effectnew standard.
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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) |
Impact of Recently Issued Accounting Pronouncements (Continued)
In April 2015, the FASB issued Accounting Standards Update No. 2015-03,Simplifying the Presentation of Debt Issuance Costs(“ASU2015-03”). The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this standards update. The Company evaluated this ASU and began early adoption beginning with the annual period ended December 31, 2016. The adoption of this ASU did not have a material impact on its consolidatedthe Company’s financial statements.position or results of operations.
In July 2015, the FASB issued ASU No. 2015-11,Simplifying the Measurement of Inventory, which amends FASB ASU Topic 330,Inventory. This ASU requires entities to measure inventory at the lower of cost or net realizable value and eliminates the option that currently exists for measuring inventory at market value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This ASU should be applied prospectively with earlier application permitted. The Company does not anticipate the adoption of this ASU todid not have a material impact on the Company’s financial position or results of operations.
In November 2015, the FASB issued ASU No. 2015-17,Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes,which simplifies the presentation of deferred income taxes. The ASU provides presentation requirements to classify deferred tax assets and liabilities as noncurrent in a classified balance sheet. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for any interim and annual financial statements that have not yet been issued. The new guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company does not expect the adoption of this standard todid not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842)(ASU 2016-02). Under ASU No. 2016-2, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU No. 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company does not expectcontinues to make progress in their due diligence and assessment of the adoptionimpact of thisthe new standard to have a material impactacross its operations and the consolidated financial statements, which will consist primarily of recording lease assets as liabilities on the Company’s consolidated financial statements.balance sheet for operating leases.
Except as noted above, the Company’s management does not believe that 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 |
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
Item 4. | Controls and Procedures |
As of SeptemberJune 30, 2016,2017, 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 significant changes in our internal control over financial reporting during the ninesix months ended SeptemberJune 30, 2016.2017.
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. 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 | ||
EX-101.INS | XBRL Instance Document | ||
EX-101.SCH | XBRL Taxonomy Extension Schema | ||
EX-101.CAL | XBRL Taxonomy Extension Calculation Linkbase | ||
EX-101.DEF | XBRL Taxonomy Extension Definition Linkbase | ||
EX-101.LAB | XBRL Taxonomy Extension Label Linkbase | ||
EX-101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
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.
PARADISE, INC. | ||||
A Florida Corporation | ||||
/s/ Randy S. Gordon | Date: | |||
Randy S. Gordon | ||||
President and Chief Executive Officer | ||||
/s/ Jack M. Laskowitz | Date: | |||
Jack M. Laskowitz | ||||
Chief Financial Officer and Treasurer |