FORM 10 - QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities Act of
1934.
For the quarterly period ended June 30, 2004
or
( ) Transition report pursuant to section 13 or 15(d) of the Securities Act of
1934.
Commission File No. 0-3026
PARADISE, INC.
INCORPORATED IN FLORIDA
I.R.S. EMPLOYER IDENTIFICATION NO. 59-1007583
1200 DR. MARTIN LUTHER KING, JR. BLVD.,
PLANT CITY, FLORIDA 33563
(813) 752-1155
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X ; No
--- ---.
The number of shares outstanding of each of the issuer's classes of common
Stock:
Class Outstanding as of June 30,
----- ---------------------------
2004 2003
---- ----
Common Stock
$0.30 Par Value 519,350 Shares 519,350 Shares
PARADISE, INC. COMMISSION FILE NO. 0-3026
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
---------------------------------
AS OF JUNE 30,
---------------
2004 2003
---- ----
ASSETS
------
CURRENT ASSETS:
Cash and Unrestricted
Demand Deposits $ 18,592 $ 22,336
Accounts and Notes
Receivable, Less
Allowances of $-0-
(2004 and 2003) 1,243,541 1,414,258
Inventories:
Raw Materials 2,689,997 2,390,947
Work in Process 551,029 484,221
Finished Goods 10,255,014 10,691,856
Deferred Income Tax Asset 305,983 372,832
Income Tax Refund
Receivable 453,470 156,948
Prepaid Expenses and Other
Current Assets 791,680 818,356
---------- ----------
TOTAL CURRENT ASSETS 16,309,306 16,351,754
Property, Plant and Equipment,
Less Accumulated Depreciation
of $13,555,922 (2004) and
$15,159,792 (2003) 5,646,604 5,678,703
Deferred Charges and Other
Assets 655,778 565,467
Goodwill 403,844
Intangible Asset - Net 123,000
---------- ----------
TOTAL ASSETS $ 23,138,532 $ 22,595,924
========== ==========
AS OF JUNE 30,
--------------
2004 2003
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes and Trade Acceptances
Payable $ 2,673,840 $ 3,126,550
Current Portion of Long-Term
Debt 252,497 136,400
Accounts Payable 2,644,741 2,960,941
Accrued Liabilities 1,132,629 1,082,416
Income Tax Payable 18,271
---------- ----------
Total Current Liabilities 6,721,978 7,306,307
LONG-TERM DEBT, NET OF CURRENT
PORTION 1,151,946 607,964
DEFERRED INCOME TAX LIABILITY 494,273 436,929
---------- ----------
Total Liabilities 8,368,197 8,351,200
---------- ----------
STOCKHOLDERS' EQUITY:
Common Stock: $.30 Par Value,
2,000,000 Shares Authorized,
583,094 Shares Issued,
519,350 Shares Outstanding 174,928 174,928
Capital in Excess of Par Value 1,288,793 1,288,793
Retained Earnings 13,645,492 13,144,713
Unrealized Holding Gain (Loss)
on Securities ( 61,959 ) ( 86,791 )
Treasury Stock, at Cost,
63,744 Shares ( 276,919 ) ( 276,919 )
---------- ----------
Total Stockholders' Equity 14,770,335 14,244,724
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 23,138,532 $ 22,595,924
========== ==========
See Accompanying Notes to these Consolidated Financial
Statements (Unaudited).
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
-----------------------------------
FOR THE THREE MONTHS ENDED
--------------------------
JUNE 30
-------
2004 2003
---- ----
Net Sales $ 2,077,380 $ 2,049,458
--------- ---------
Costs and Expenses:
Cost of Goods Sold
(excluding Depreciation) 933,649 1,023,706
Selling, General and
Administrative Expense 863,895 694,252
Depreciation and Amortization 200,774 191,039
Interest Expense 18,719 28,600
--------- ---------
Total Costs and Expenses 2,017,037 1,937,597
--------- ---------
Income from Operations 60,343 111,861
Other Income 1,856 15,180
--------- ---------
Income from Operations
Before Provision for Income
Taxes 62,199 127,041
Provision for Income Taxes 0 0
--------- ---------
Net Income $ 62,199 $ 127,041
========= =========
Net Income per
Common Share $ 0.12 $ 0.25
==== ====
See Accompanying Notes to these Consolidated Financial
Statements (Unaudited).
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
-----------------------------------
FOR THE SIX MONTHS ENDED
------------------------
JUNE 30
-------
2004 2003
---- ----
Net Sales $ 3,967,206 $ 3,988,324
--------- ---------
Costs and Expenses:
Cost of Goods Sold
(excluding Depreciation) 2,484,865 2,703,120
Selling, General and
Administrative Expense 1,640,817 1,467,104
Depreciation and Amortization 390,741 381,468
Interest Expense 29,596 37,874
--------- ---------
Total Costs and Expenses 4,546,019 4,589,566
--------- ---------
Loss from Operations ( 578,813 ) ( 601,242 )
Other Income 4,199 19,331
--------- ---------
Loss from Operations Before
Provision for Income Taxes ( 574,614 ) ( 581,911 )
Provision for Income Taxes 0 0
--------- ---------
Net Loss $( 574,614 ) $( 581,911 )
========= =========
Net Loss per Common Share $( 1.11 ) $( 1.12 )
==== ====
See Accompanying Notes to these Consolidated Financial
Statements (Unaudited).
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
---------------------------------------
FOR THE SIX MONTHS ENDED
------------------------
JUNE 30,
--------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $( 574,614 ) $( 581,911 )
Adjustments to Reconcile Net
Loss to Net Cash Used in
Operating Activities:
Depreciation and Amortization 390,741 381,468
Decrease (Increase) in:
Accounts Receivable 531,440 1,972,229
Inventories ( 6,933,962 ) ( 7,114,038 )
Prepaid Expenses ( 353,631 ) ( 276,017 )
Other Assets ( 8,812 ) ( 10,230 )
Income Tax Receivable ( 155,630 )
Increase (Decrease) in:
Accounts Payable 2,203,335 2,645,930
Accrued Expense ( 363,407 ) ( 673,366 )
Income Taxes Payable ( 79,370 )
--------- ---------
Net Cash Used in
Operating Activities ( 5,108,910 ) ( 3,890,935 )
--------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of Property and
Equipment ( 200,693 ) ( 185,161 )
Cash Paid for Investment in
Subsidiary ( 731,481 )
--------- ---------
Net Cash Used in
Investing Activities ( 932,174 ) ( 185,161 )
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of
Long-Term Debt 800,000
Net Proceeds (Repayments) of
Short-Term Debt 2,399,435 3,029,067
Principal Payments of Long-Term
Debt ( 127,518 ) ( 83,665 )
Dividends Paid ( 103,870 ) ( 181,772 )
Loan Cost Payments ( 18,970 )
--------- ---------
Net Cash Provided by
Financing Activities 2,949,077 2,763,630
--------- ---------
Net Decrease in Cash ( 3,092,007 ) ( 1,312,466 )
CASH AT BEGINNING OF PERIOD 3,110,599 1,334,802
--------- ---------
CASH AT END OF PERIOD $ 18,592 $ 22,336
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 29,596 $ 38,972
========= =========
Income Taxes $ $ 235,000
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Long-Term Debt Assumed or Issued for:
Equipment Purchases or
Capital Leases $ $ 41,053
========= =========
Covenant Not to Compete $ 123,000 $
========= =========
See Accompanying Notes to these Consolidated Financial
Statements (Unaudited).
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO 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 generally accepted accounting principles 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
generally accepted accounting principles for annual financial
statements.
The information furnished herein reflects all adjustments and accruals
that management believes is necessary to fairly state the operating
results for the respective periods. The notes to the financial
statements should be read in conjunction with the notes to the
consolidated financial statements contained in the Company's
Form 10-KSB for the year ended December 31, 2003. The Company's
management believes that the disclosures are sufficient for interim
financial reporting purposes.
Note 2 Net Income (Loss) per Share
--------------------------------------
Net income (loss) per share, assuming no dilution, are based on the
weighted average number of shares outstanding during the period: 519,350
(2004 and 2003).
Note 3 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
---------------- ---------
Candied Fruit Production of candied fruit, a basic
fruitcake ingredient, sold to
manufacturing bakers, institutional
users, and retailers for use in home
baking. Also, 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.
Six Months Six Months
Ended Ended
June 30, 2004 June 30, 2003
------------- -------------
Net Sales in Each Segment
-------------------------
Candied Fruit:
Sales to Unaffiliated Customers $ 853,504 $ 1,424,849
Molded Plastics:
Sales to Unaffiliated Customers 3,113,702 2,563,475
--------- ---------
Net Sales $ 3,967,206 $ 3,988,324
========= =========
For the six month period ended June 30, 2004 and 2003, sales of frozen
strawberry products totaled $240,380 and $523,616, respectively.
The Company does not account for intersegment transfers as if the
transfers were to third parties.
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 generally accepted accounting
principles.
Six Months Six Months
Ended Ended
June 30, 2004 June 30, 2003
------------- -------------
Identifiable Assets of Each
Segment are Listed Below
---------------------------
Candied Fruit $ 14,896,498 $ 15,823,907
Molded Plastics 4,739,737 3,506,199
---------- ----------
Identifiable Assets 19,636,235 19,330,106
General Corporate Assets 3,502,297 3,265,818
---------- ----------
Total Assets $ 23,138,532 $ 22,595,924
========== ==========
Identifiable assets by segment are those assets that are principally
used in the operations of each segment. General corporate assets are
principally cash, land and buildings, and investments.
Note 4 Business Combination
---------------------------------
On May 13, 2004, the Company acquired 100 percent of the outstanding
shares of Mastercraft Products Corporation, for a total cost of
$887,081. The results of Mastercraft Products Corporation operations
have been included in the consolidated financial statements since April
1, 2004. Mastercraft Products Corporation manufactures and sells
custom plastic and related products. The acquisition was made to
increase the Company's customer base and add new products to the
Company's existing line of plastics goods. The source of funds for the
acquisition was a combination of the Company's available cash and loan
proceeds of $800,000.
The following (unaudited) pro forma consolidated results of operations
have been prepared as if the acquisition of Mastercraft Products
Corporation had occurred at January 1, 2003:
Three Months Three Months
Ended Ended
June 30, 2004 June 30, 2003
------------- -------------
Net Sales $ 2,077,380 $ 2,335,590
Net Income 62,199 150,416
Net Income per Share - Basic 0.12 0.29
Net Income per Share - Diluted 0.12 0.29
Six Months Six Months
Ended Ended
June 30, 2004 June 30, 2003
------------- -------------
Net Sales $ 4,263,784 $ 4,564,196
Net Loss ( 557,413 ) ( 666,718 )
Net Loss per Share - Basic ( 1.07 ) ( 1.28 )
Net Loss per Share - Diluted ( 1.07 ) ( 1.28 )
The pro forma information is presented for informational purposes only
and is not necessarily indicative of the results of operations that
actually would have been achieved had the acquisition been consummated
as of that time, nor is it intended to be a projection of future results.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
------------------------------------------------------------------------
Overview
--------
The Company's core business, glace' (candied) fruit, which accounted for
approximately 77% of total annual net sales during 2003, is highly
seasonal. That is because the products are utilized primarily as
ingredients for fruitcakes and other winter holiday confections, and
nearly 85% of the annual shipments in that segment of business are made
during an eight to ten week period, beginning in early September.
However, in order to make timely deliveries during this period of peak
demand, Paradise must manufacture, package and store products throughout
the year, building large inventories, and accruing expenses against
which there is little offsetting income. The recording of substantial
losses is common well into the fourth quarter, even during the most
profitable years. Therefore, it is the opinion of management that only
a full year's financial reporting will yield a meaningful measure of the
Company's performance.
Manufacturing activity varies greatly from quarter to quarter and from
year to year, depending on seasonal harvests and availability of raw
materials, anticipated orders and other factors. A comparison of the
current quarter with that immediately preceding or the similar quarter
during the past year yields little useful information, so "Management's
Discussion" is confined to data from the current year-to-date as
compared to the like period during the preceding year.
The Company's other segment of business, plastics molding, accounted for
approximately 23% of total 2003 net sales, and generally does not have
the extreme seasonal variations as the fruit segment. As mentioned, in
the Company's first quarter 2004 filing, Paradise, Inc. acquired 100
percent of the outstanding shares of Mastercraft Products Corporation on
May 13, 2004. The Company located in Central Florida will operate
within the plastics segment of Paradise, Inc. Management is confident
that the combination of resources, capabilities and facilities will
greatly enhance the sales of plastics products currently offered to
clients in the food, medical and high-tech industries located throughout
the Southeast. Additional information regarding the acquisition of
Mastercraft Products Corporation is disclosed in Note 4 of the enclosed
report.
The First Six Months
--------------------
Paradise, Inc.'s overall net sales for the first six months of 2004
decreased by less than 1% compared to the similar reporting period of
2003. This includes $240,727 of net sales contributed to the acquisition
of Mastercraft Products Corporation on May 13, 2004.
Fruit segment net sales as a percentage of total net sales decreased by
14% based upon the following reasons. First, the Company's sales of
frozen strawberry products, as a percentage of net sales, declined by 7%
due to the limited amount of product available for sale during the past
six months. As mentioned in previous filings, Paradise, Inc. will enter
the frozen strawberry market, if market conditions at time of harvest,
project that a reasonable profit level can be achieved. These
conditions were not present during the past year. Second, timing
differences were realized in the sale of glace' fruit products to
several customers whose orders were received and shipped after the end
of the current reporting period.
During 2003, these same customer orders were received and shipped prior
to the end of the second quarter. With revenue recognition based on
shipment date, fluctuations in net sales will occur when these dates
vary between reporting periods.
In the Plastics segment, net sales to unaffiliated customers increased
by 22% for the first six months of 2004. This increase includes $240,727
in net sales from the acquisition of Mastercraft Products Corporation on
May 13, 2004. Primarily, growth in this segment has been achieved by
continuing to produce quality plastics products to existing customers.
Thus, as customer needs have expanded, the Company has benefited from
this increase in demand. In addition, several new accounts secured by
management during the first quarter of 2004 are now generating
additional revenue for this segment.
Expressed as a percentage of sales, costs of goods sold decreased by
5% compared to the prior year's reporting period. The primary reason
for this decrease is based upon the reduced level of frozen strawberry
products produced and sold during the first six months of 2004 compared
to 2003. During the previous year, market conditions for the sale of
frozen strawberry products were less than favorable, thereby causing a
reduction in the gross margin realized from these sales.
Excluding the production of frozen strawberries, the cost of goods sold
as a percentage of sales remained virtually unchanged for the first six
months of 2004 compared to 2003. However, with price increases absorbed
from suppliers of plastics raw materials and with more than 60% of the
production cycle yet to be completed for the Company's glace' fruit, it
is reasonable to expect an increase in cost of sales in the upcoming
months.
Selling expenses increased by almost 6% compared to the prior six months
of 2003, as the Company recorded increases in travel expenses related to
the identification and procurement of raw materials within the glace'
fruit segment. In addition, marketing expenses associated with the
Company's glace' fruit new labeling and coupon redemption program, first
introduced during the third quarter of 2003, have now been accrued for
during the second quarter of 2004. Based upon positive feedback
received from Paradise, Inc.'s customers to these changes, the Company
has expanded this marketing campaign to include private label brands for
the upcoming selling season. As such, the Company does expect an
increase in selling expenses for the expansion of this program.
General and administrative expenses increased by 6% as the cost to fund
the Company's pension plan continued to rise. Also, contributing to
this increase were professional fees paid to the Company's primary
software consultant in order to strengthen the security and performance
of the company's computer network.
Interest expense decreased by 22% over the previous year's six month
reporting period as interest rates charged by the Company's primary
lending institution for term debt and revolving short-term working
capital loans continued to decline.
Summary
-------
Including the activity from the acquisition of Mastercraft Products
Corporation, overall net sales decreased by less than 1% for the first
six months of 2004 compared to 2003. Net loss for the period in
review decreased by 1.3% as increases in selling expenses were offset
by the reduction in cost of sales as noted above.
While the results from operations are similar to the previous six months
reporting period of 2003, with less than 20% of the total anticipated
annual net sales recognized to date, it is too early to make any
reasonable forecast as to net earnings for the current year.
Item 3. Controls and Procedures
--------------------------------
The Company's Chief Executive Officer and Chief Financial Officer have,
within 90 days of the filing date of this quarterly report, evaluated
the Company's disclosure controls and procedures. Based on their
evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the applicable Securities
and Exchange Commission rules and forms. There were no significant
changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of the
most recent evaluation of these controls by the Company's Chief
Executive Officer and Chief Financial Officer. No significant
deficiencies or material weaknesses in the Company's internal controls
were identified, therefore, no corrective actions were taken.
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings - N/A
Item 2. Changes in Securities - N/A
Item 3. Defaults upon Senior Securities - N/A
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of Paradise, Inc. was
held on May 27, 2004. The purpose of the meeting was to elect
five directors to hold office until the next annual meeting of
shareholders and to ratify the reappointment of Bella,
Hermida, Gillman, Hancock & Mueller as the Company's
independent certified public accountants for 2004.
The following is the results of the election of Directors:
Nominee Votes For Votes Withheld
------- --------- --------------
Melvin S. Gordon 457,898 2,682
Randy S. Gordon 457,898 2,682
Tracy W. Schulis 457,698 2,882
Mark H. Gordon 457,878 2,702
Eugene L. Weiner 457,898 2,682
The following is the results of the ratification of Bella,
Hermida, Gillman, Hancock & Mueller as the Company's
independent accountants for 2004:
For Against Abstain
----- ------- -------
460,363 217 0
Item 5. Other Information - N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
------- -----------
31.1 Certification of Chief Executive Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive
Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of the Chief Financial
Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
None.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PARADISE, INC.
A Florida Corporation
/s/ Melvin S. Gordon Date: August 16, 2004
-----------------------------
Melvin S. Gordon
Chief Executive Officer and Chairman
/s/ Jack M. Laskowitz Date: August 16, 2004
--------------------------------
Jack M. Laskowitz
Chief Financial Officer and Treasurer