FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | Quarterly report pursuant to section 13 or 15(d) of the Securities Act of 1934. |
For the quarterly period ended June 30, 2015March 31, 2016
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). 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
Large accelerated filer¨ | Accelerated filer¨ | Non-accelerated filer¨ | Smaller reporting companyx |
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 August 13, 2015May 12, 2016 was 519,600 shares.
PARADISE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015MARCH 31, 2016
INDEX
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements |
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED | FOR THE THREE MONTHS ENDED | |||||||||||||||
JUNE 30, | MARCH 31, | |||||||||||||||
2015 | 2014 | 2016 | 2015 | |||||||||||||
Net Sales | $ | 2,479,127 | $ | 2,677,310 | $ | 2,962,956 | $ | 2,691,757 | ||||||||
Costs and Expenses: | ||||||||||||||||
Cost of Goods Sold | 2,023,133 | 1,901,693 | 2,340,039 | 2,460,173 | ||||||||||||
Selling, General and Administrative Expense | 898,586 | 818,228 | 933,355 | 933,060 | ||||||||||||
Amortization Expense | 35,972 | 35,972 | 36,360 | 35,971 | ||||||||||||
Total Costs and Expenses | 2,957,691 | 2,755,893 | 3,309,754 | 3,429,204 | ||||||||||||
Loss from Operations | (478,564 | ) | (78,583 | ) | (346,798 | ) | (737,447 | ) | ||||||||
Other (Expense) Income | 26,539 | (3,301 | ) | |||||||||||||
Other Income | 1,743 | 18,313 | ||||||||||||||
Loss Before Income Taxes | (452,025 | ) | (81,884 | ) | (345,055 | ) | (719,134 | ) | ||||||||
Income Tax Benefit | 180,810 | 32,753 | 138,022 | 287,654 | ||||||||||||
Net Loss | $ | (271,215 | ) | $ | (49,131 | ) | $ | (207,033 | ) | $ | (431,480 | ) | ||||
Loss per Common Share (Basic and Diluted) | $ | (0.52 | ) | $ | (0.09 | ) | $ | (0.40 | ) | $ | (0.83 | ) | ||||
Dividend per Common Share | $ | 0.00 | $ | 0.00 | $ | 0.15 | $ | 0.11 |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED | ||||||||
JUNE 30, | ||||||||
2015 | 2014 | |||||||
Net Sales | $ | 5,170,884 | $ | 5,740,382 | ||||
Costs and Expenses: | ||||||||
Cost of Goods Sold | 4,483,306 | 4,378,953 | ||||||
Selling, General and Administrative Expense | 1,831,646 | 1,678,104 | ||||||
Amortization Expense | 71,943 | 71,943 | ||||||
Total Costs and Expenses | 6,386,895 | 6,129,000 | ||||||
Loss from Operations | (1,216,011 | ) | (388,618 | ) | ||||
Other Income | 44,852 | 36,961 | ||||||
Loss Before Income Taxes | (1,171,159 | ) | (351,657 | ) | ||||
Income Tax Benefit | 468,464 | 140,663 | ||||||
Net Loss | $ | (702,695 | ) | $ | (210,994 | ) | ||
Loss per Common Share (Basic and Diluted) | $ | (1.35 | ) | $ | (0.41 | ) | ||
Dividend per Common Share | $ | 0.11 | $ | 0.11 |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED | FOR THE THREE MONTHS ENDED | |||||||||||||||
JUNE 30, | MARCH 31, | |||||||||||||||
2015 | 2014 | 2016 | 2015 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net Loss | $ | (702,695 | ) | $ | (210,994 | ) | $ | (207,033 | ) | $ | (431,480 | ) | ||||
Adjustments to Reconcile Net Loss to | ||||||||||||||||
Net Cash Used in Operating Activities: | ||||||||||||||||
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||||||||||
Depreciation and Amortization | 280,729 | 297,819 | 140,152 | 139,006 | ||||||||||||
Provision for Deferred Income Taxes | - | - | ||||||||||||||
Decrease (Increase) in: | ||||||||||||||||
Accounts Receivable | 1,777,946 | 1,479,226 | 563,251 | 1,163,220 | ||||||||||||
Inventories | (4,996,440 | ) | (5,214,071 | ) | (2,113,177 | ) | (1,543,425 | ) | ||||||||
Prepaid Expenses and Other Current Assets | (194,626 | ) | (307,245 | ) | 176,649 | 137,520 | ||||||||||
Income Tax Asset | (655,964 | ) | (185,663 | ) | ||||||||||||
Income Tax Receivable | (194,714 | ) | (312,654 | ) | ||||||||||||
Other Assets | 8,205 | (103,797 | ) | 35,888 | 75,783 | |||||||||||
Increase (Decrease) in: | ||||||||||||||||
Accounts Payable | 178,260 | 884,339 | 332,446 | 191,771 | ||||||||||||
Accrued Expense | (613,385 | ) | (601,268 | ) | ||||||||||||
Accrued Liabilities | (629,930 | ) | (626,590 | ) | ||||||||||||
Net Cash Used in Operating Activities | (4,917,970 | ) | (3,961,654 | ) | (1,896,468 | ) | (1,206,849 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchase of Property and Equipment | (498,614 | ) | (71,970 | ) | (184,505 | ) | (444,476 | ) | ||||||||
Net Cash Used in Investing Activities | (498,614 | ) | (71,970 | ) | (184,505 | ) | (444,476 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Net Proceeds from Short Term Debt | 1,042,709 | 496,465 | ||||||||||||||
Dividends Paid | (57,156 | ) | (57,156 | ) | ||||||||||||
Proceeds from Short Term Debt | 499,437 | 149,112 | ||||||||||||||
Payments on Short Term Debt | (379,475 | ) | (49,267 | ) | ||||||||||||
Net Cash Provided by Financing Activities | 985,553 | 439,309 | 119,962 | 99,845 | ||||||||||||
NET DECREASE IN CASH | (4,431,031 | ) | (3,594,315 | ) | (1,961,011 | ) | (1,551,480 | ) | ||||||||
CASH, AT BEGINNING OF PERIOD | 7,788,010 | 5,916,366 | 8,791,938 | 7,788,010 | ||||||||||||
CASH, AT END OF PERIOD | $ | 3,356,979 | $ | 2,322,051 | $ | 6,830,927 | $ | 6,236,530 | ||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid for: | ||||||||||||||||
Income Taxes | $ | 187,500 | $ | - | ||||||||||||
Income Tax | $ | 244,000 | $ | 25,000 | ||||||||||||
Noncash financing activity: | ||||||||||||||||
Dividends Declared | $ | 77,940 | $ | 57,156 |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
5
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 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, 2014.2015. 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 sixthree months ended June 30, 2015March 31, 2016 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 six monthsquarter ended June 30, 2014March 31, 2015 to conform to the classifications used for the three and six monthsquarter ended June 30, 2015.
March 31, 2016.
NOTE 2 | IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)ASU No. 2014-09,Revenue from Contracts with Customers, (Topic 606). The guidance in this update supersedeswhich requires an entity to recognize the amount of revenue recognition requirements in Topic 605,Revenue Recognition, and most industry-specific guidance throughout Industry topics of the Codification.Additionally, thisUpdate supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts.In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles-Goodwill and Other) are amendedto which it expects to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this Update.Under the new guidance, an entity should recognize revenue to depictentitled for the transfer of promised goods or services to customerscustomers. The ASU will replace most existing revenue recognition guidance in an amountU.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 reflectsASU No. 2014-09 will have on its financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the consideration to whicheffect of the entity expects to be entitled in exchange for those goods or services. On April 1,standard on its consolidated financial statements.
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 voted for a one-year deferral of the effective date of the new revenue recognition standard,issued ASU No. 2014-09. If these proposed changes are finalized, this standard would require public2015-11,Simplifying the Measurement of Inventory, which amends FASB ASU Topic 330,Inventory. This ASU requires entities to applymeasure inventory at the amendmentslower 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 No. 2014-09is effective for annual reportingfiscal years beginning after December 15, 2017. Early2016, including interim periods within those fiscal years. This ASU should be applied prospectively with earlier application permitted. The Company does not anticipate the adoption wouldof this ASU to 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 permitted asapplied 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 to 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 original effective date infinancial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU No. 2014-09, which2016-02 is effective for annual reporting periods beginning after December 15, 2016. We are2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact of adoptingthese changes to the guidance on ourCompany’s consolidated financial statements.
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.
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3 | LOSS PER COMMON SHARE |
Basic and diluted loss per common share isare based on the weighted average number of shares outstanding and assumed to be outstanding of 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 | |||||||
June 30, | June 30, | |||||||
2015 | 2014 | |||||||
Net Sales in Each Segment | ||||||||
Fruit: | ||||||||
Sales to Unaffiliated Customers | $ | 302,841 | $ | 447,667 | ||||
Molded Plastics: | ||||||||
Sales to Unaffiliated Customers | 2,176,286 | 2,229,643 | ||||||
Net Sales | $ | 2,479,127 | $ | 2,677,310 |
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Six months ended | Six months ended | March 31, | March 31, | |||||||||||||
June 30, | June 30, | 2016 | 2015 | |||||||||||||
2015 | 2014 | |||||||||||||||
Net Sales in Each Segment | ||||||||||||||||
Fruit: | ||||||||||||||||
Sales to Unaffiliated Customers | $ | 1,307,129 | $ | 1,228,597 | $ | 853,280 | $ | 1,004,288 | ||||||||
Molded Plastics: | ||||||||||||||||
Sales to Unaffiliated Customers | 3,863,755 | 4,511,785 | 2,109,676 | �� | 1,687,469 | |||||||||||
Net Sales | $ | 5,170,884 | $ | 5,740,382 | $ | 2,962,956 | $ | 2,691,757 |
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.
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
June 30, | June 30, | |||||||
2015 | 2014 | |||||||
Identifiable Assets of Each Segment are Listed Below: | ||||||||
Fruit | $ | 12,343,020 | $ | 13,895,562 | ||||
Molded Plastics | 5,115,888 | 4,755,551 | ||||||
Identifiable Assets | 17,458,908 | 18,651,113 | ||||||
General Corporate Assets | 5,897,391 | 4,726,036 | ||||||
Total Assets | $ | 23,356,299 | $ | 23,377,149 |
NOTE 4 | BUSINESS SEGMENT DATA (CONTINUED) |
March 31, | March 31, | |||||||
2016 | 2015 | |||||||
Identifiable Assets of Each Segment are Listed Below: | ||||||||
Fruit | $ | 10,517,525 | $ | 9,230,689 | ||||
Molded Plastics | 5,193,929 | 5,404,949 | ||||||
Identifiable Assets | 15,711,454 | 14,635,638 | ||||||
General Corporate Assets | 8,486,556 | 8,106,474 | ||||||
Total Assets | $ | 24,198,010 | $ | 22,742,112 |
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.
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On July 31, 2015, Paradise, Inc. renewed its revolving line of credit with SunTrust Banks through July 31, 2017. This renewal provides for a maximum limit of $12 million and a borrowing limit 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 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%.
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 65.8%68.3% of total net sales during the prior year ended December 31, 2014.2015. These products are sold to manufacturing bakers, institutional users, supermarkets and other retailers throughout the country. Consumer demand for glace’ fruit product is traditionally strongest during the Thanksgiving and Christmas season. Almost 80% of glace’ fruit product sales are recorded during an eight to ten week period beginning in mid September.
Since the majority of the Company’s customers require delivery of glace’ candied fruit products during this relatively short period of time, Paradise, Inc. must operate at consistent levels of production from as early as January through the middle of November of each year in order to meet peak demands. Furthermore, the Company must make substantial borrowings of short-term working capital to cover the cost of raw materials, factory overhead and labor expense associated with production for inventory. This combination of building and financing inventories during the year, without the opportunity to record any significant fruit product income, results in the generation of operating losses well into the third quarter of each year. Therefore, it is the opinion of management that meaningful forecasts of annual net sales or profit levels require analysis of a full year’s operations.
In addition, comparison of current quarterly results to the preceding quarter produces an incomplete picture on the Company’s performance due to year-to-year changes in production schedules, seasonal harvests and availability of raw materials, and in the timing of customer orders and shipments. Thus, the discussion of information presented within this report is focused on the review of the Company’s current year-to-date results as compared to the similar period last year.
Paradise, Inc.’s other business segment, Paradise Plastics, Inc., a wholly owned subsidiary of Paradise, Inc. producing custom molding products, is not subject to the seasonality of the glace’ fruit business. This segment represents all injection molding and thermoforming operations, including the packaging for the Company’s fruit products. Only sales to unaffiliated customers are reported.
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
The First Six MonthsQuarter
Paradise, Inc.’s fruit segment net sales for the first six monthsquarter of 2015 increased 6.4%2016 totaled $853,280 compared to $1,307,129 from $1,228,597net sales of $1,004,288 for the similar reporting period of 2014.2015 representing a decrease of $151,008 or 15.0%. The fruit segment has two primary sales activitiesproducts for this segmentsale during the first six monthsquarter of the year relateyear. The main product is glace’ fruit sold in bulk quantities and shipped to manufacturing bakeries and select supermarkets for the sale oftraditional Easter holiday season. Net sales orders received and shipped for bulk fruit to supermarkets and manufacturing bakeries; and tolling fees generated from the production of fresh strawberries on behalf of a local Plant City, Florida distributor. For the first six months of 2015, net sales of glace’ fruit products totaled $808,786during the first three months of 2016 were $482,589 compared to $887,859$508,223 for the similar reporting period of 2014. Sales2015, representing a decrease of $25,634 or 5.0%. The other main product for sale in the first quarter is finished strawberry products totaled $498,343items produced exclusively for a local distributor during a short period of time beginning in early March and running through mid 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 weather conditions not as favorable as in past years, net sales for the three months ending March 31, 2016 were $370,691 compared to $340,738$496,065 representing a decrease of $125,374 for the similar reporting period of 2014.three months ending March 31, 2015.
Paradise Plastics, Inc., a wholly owned company of Paradise, Inc., which accounted for 34.2%31.7% of total net sales to unaffiliated customers for the previous year, generated net sales of $3,863,755$2,109,676 for the sixthree months ended June 30, 2015March 31, 2016 compared to $4,511,785$1,687,469 for the similar reporting period of 2014.2015. This decrease in netrepresents an increase of $422,207 or 25.0%. The primary reason for this increase relates to a greater amount of sales of $648,030 which was first reportedorders received and disclosed in Paradise, Inc.’sshipped to a long term plastics customer for higher priced heavy gauge vacuum forming parts used for their customers within the housing market. While encouraged with increased sales orders received and shipped during the first quarter 10Q filing is directly relatedof 2016 along with higher profit margins than for the similar reporting period for the three months ending March 31, 2015, no determination can be made as to the decisionhow much additional revenue, if any, will be generated in future reporting periods for 2016. As to most plastics sales orders, commitments for parts are usually for a short term period of an existing long term customerup to transfer production of custom molding90 days. Future revenue can only be determined when re-orders for these plastics parts are received and shipped by Paradise Plastics, Inc. to their facilities as of January 1, 2015.its customers.
Consolidated cost of sales as a percentage of net sales increased 10.3% duringdecreased 12.0% for the first six monthsquarter of 20152016 compared to the similar reporting period of 2014. This2015. Two reasons represent this change. First, the increase is two-fold;in plastics parts ordered and shipped to a long term plastics customer included higher sales prices and therefore higher gross margins. Secondly, during the first a delayquarter of 2016, the Company’s fruit segment commenced production of its in receiving raw fruit materialshouse brining operations producing of 1.6 million lbs. of binned orange peel inventory. With more than an adequate amount of brined orange peel in the Company’s inventory as of June 30,January 1, 2015, resulted in a lesser amount of raw materials processed into higher valued finish goods inventory compared to June 30, 2014. However, with capacity to process an increased amount of raw fruit materials into finish goods inventory duringbrining operations for the thirdfirst quarter of 2015 were postponed. Thus, the increase in seasonal production of brined fruit segmentallocated over a relatively fixed amount of factory overhead (i.e.: insurance, utilities, depreciation and taxes) had an impact of reducing cost of sales should returnas of March 31, 2016 compared to margins reported and disclosed inMarch 31, 2015. However, seasonal production does not represent a trend or an estimate that can be projected for the Company’s 2014 third quarter filing. Secondly,remainder of 2016. The Company typically starts processing all of its various brined fruit inventory into finished inventory at the beginning of June for each year. Thus, it is important to understand that until this production period, which will run from June through October is completed, the Company will not be able to determine the change cost of sales within the plastics segment has increased as the margins generated from production transferred backand its relationship to an existing plastics customer, has been replaced with lower margin accounts during the second quarter of 2015.overall sales.
Selling, general and& administrative (S,G&A) expenses for the first sixthree months of 2016 totaled $933,355 and were consistent with S,G&A expenses for the first three months of 2015 increased 9.15% compared to the similar reporting period of 2014 as the Company’s sales force increased their attendance and participation at various trade shows during the first six months of 2015.
Inventory as of June 30, 2015which totaled $12,481,349 compared to $14,051,869 as of June 30, 2014. This decrease of $1,570,520 is primarily related to the delay in receipt of raw fruit inventory from one of the Company’s major suppliers. On June 30, 2015, $911,436 of fruit material was in transit compared to just $109,712 at June 30, 2014. As the Company utilizes existing letters of credit to finance the purchase of in transit raw fruit commodities, short term debt correspondingly increased to $1,155,588 as of June 30, 2015 from $496,465 as of June 30, 2014.
Accounts Receivable as of June 30, 2015 totaled $1,268,723 compared to $890,095 as of June 30, 2014. The increase is due to the timing of payments received from one of the Company’s long term plastics customers. On July 31, 2015, payments totaling $511,956 related to outstanding invoices at June 30, 2015 have been received and posted.
$933,060.
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 first quarter of 2016 totaled $1,743 compared to $18,313 for the similar reporting period of 2015. 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.
Inventory as of March 31, 2016 was $10,292,846 compared to $9,028,334 as of March 31, 2015 representing an increase of $1,264,512 or 14.0% as shipments from suppliers of brined fruit commodities, which may fluctuate based upon many factors common to agricultural products, were received in greater quantities during the first quarter of 2016 than the first quarter of 2015. With several of the Company’s brined fruit commodities being shipped to its processing facility located in Plant City, Florida from as far away as Southeast Asia, timing differences regarding levels of on hand brined fruit will occur at various interim reporting periods. Management’s primary goal at the end of the first quarter of its fiscal year, is to determine if inventory levels are sufficient for the upcoming selling season. For the period in review, this goal has been met.
Short Term Debt and Accounts Payable combined balances as of March 31, 2016 totaled $1,651,185 compared to $1,007,847 for the similar reporting period for 2015. These two accounts are directly related to the increased amount of inventory on hand at March 31, 2016 as referenced in the preceding paragraph.
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 June 30, 2015March 31, 2016 and December 31, 2014,2015, we had $3,356,979$6.8 million and $7,788,010,$8.8 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 50% of the Company’s eligible inventory from January 1 to May 31 and 60% from June 1 to December 31 of each year, of which $0 was outstanding at June 30, 2015March 31, 2016 and December 31, 2014.2015. Within this agreement, there are letters of credit with a limit of $1,750,000, of which $1,155,588$702,801 was outstanding at June 30, 2015March 31, 2016 and $112,879$582,839 at December 31, 2014.2015. The line of credit agreement expires on July 31, 2017. Net cash used in operating activities decreased from $3,961,654 for the six months ended June 30, 2014 to $4,917,970 for the six months ended June 30, 2015. The primary reason for this decrease was as follows; Accounts Payable and income tax payments made during the six months ended June 30, 2015 were $893,579 more than the similar reporting period of 2014. Net cash provided by financing activities increased to $985,553 for the six months ended June 30, 2015 compared to $439,309 for the six months ended June 30, 2014 due to timing of payments on letters of credit.
Summary
Paradise, Inc.’s consolidated net sales for the first sixthree months of 2015 decreased $569,498ended March 31, 2016 totaled $2,962,956 compared to $2,691,757 for the similar reporting period of 20142015, representing an increase of 10.1%. This increase is specifically attributable to the plastics segment as increased sales orders were received and shipped related to parts that are needed by a long term customer within the housing market. Cost of sales as a majorpercentage of sales decreased by 12.0% as higher gross margins were realized on these plastics customer decidedparts. In addition, an increase in brined fruit production during the first quarter of 2016 also impacted a decrease in the cost of sales as a greater amount of production was allocated over a relatively fixed level of factory overhead. Overall, this activity resulted in a net loss of $207,033 for the three months ended March 31, 2016 compared to bring in-house productiona net loss of several custom molding products.$431,480 for the three months ended March 31, 2015. However, as mentioned and disclosed in all previous quarterly filings, interim filings, due to the highly seasonal nature of the Company’s primary product, glace’ fruit, which accounts for approximately 65% of consolidatedresults do not represent any meaningful trends or estimates in annual revenue with more than 80% of this revenue earned during an eight to ten week period commencing in mid-September of each year no meaningful financial analysis may be developed from Paradise, Inc.’s interim reporting results.performance. Only a full year’s accounting of revenuesales and expenses will provide a complete picture of the necessary information to determineconsolidated operations of the Company’s overall financial performance.Company.
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, 2014.2015. There have been no material changes to our critical accounting estimates during the sixthree months ended June 30, 2015.March 31, 2016.
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 has not yet selected a transition method nor has it determined the effect of the standard on its consolidated financial statements.
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 to 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 to have a material impact on the Company’s consolidated financial statements.
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 May 2014,February 2016, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”)ASU No. 2014-09,2016-02,Revenue from Contracts with CustomersLeases (Topic 842)(Topic 606)ASU 2016-02). TheUnder 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 in this update supersedes the revenue recognition requirements in Topic 605,Revenue Recognition,for a lessee, a lessor and most industry-specific guidance throughout Industry topicssale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the Codification.Additionally, thisUpdate supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition - Construction-Typefinancial statements to assess the amount, timing and Production-Type Contracts.In addition, the existing requirements for the recognitionuncertainty of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles-Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this Update.Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On April 1, 2015, the FASB voted for a one-year deferral of the effective date of the new revenue recognition standard,cash flows arising from leases. For public companies, ASU No. 2014-09. If these proposed changes are finalized, this standard would require public entities to apply the amendments in ASU No. 2014-09 for annual reporting beginning after December 15, 2017. Early adoption would be permitted as of the original2016-02 is effective date in ASU No. 2014-09, which is for annual reporting periods beginning after December 15, 2016. We are2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact of adoptingthese changes to the guidance on ourCompany’s consolidated financial statements.
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 |
Item 4. | Controls and Procedures |
As of June 30, 2015,March 31, 2016, 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 six monthsquarter ended June 30, 2015.March 31, 2016.
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/ | Date: | |||
President and Chief Executive Officer | ||||
/s/ Jack M. Laskowitz | Date: | |||
Jack M. Laskowitz | ||||
Chief Financial Officer and Treasurer |