FORM 10-Q

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

x

Quarterly report pursuant to section 13 or 15(d) of the Securities Act of 1934.

 

For the quarterly period ended March 31, 2017

 

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. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ¨
		(Do not check if a smaller reporting 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 ¨ No x

 

The number of shares outstanding of each of the issuer’s classes of common stock as of May 15, 2017 was 519,600 shares.

 

 

PARADISE, INC.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017

INDEX

 

		PAGE
PART I.	FINANCIAL INFORMATION
	ITEM 1.
	CONSOLIDATED BALANCE SHEETS:
	Assets
	As of March 31, 2017 (Unaudited), December 31, 2016 and March 31, 2016 (Unaudited)	2
	Liabilities and Stockholders’ Equity
	As of March 31, 2017 (Unaudited), December 31, 2016 and March 31, 2016 (Unaudited)	3
	CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED):
	For the three-month periods ended March 31, 2017 and 2016	4
	CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED):
	For the three-month periods ended March 31, 2017 and 2016	5
	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	6 – 9
	ITEM 2.
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	10 – 14
	ITEM 3.
	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK – N/A	15
	ITEM 4.
	CONTROLS AND PROCEDURES	15
PART II.	OTHER INFORMATION
	ITEMS 1 – 6.	16
SIGNATURES		17

 

 

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
		MARCH 31,				AS OF				MARCH 31,
		2017				DECEMBER 31,				2016
		(UNAUDITED)				2016				(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash		$	7,633,002			$	9,240,638			$	6,830,927
Accounts Receivable, Less, Allowances of $0 (03/31/17), $1,215,153 (12/31/16) and $0 (03/31/16)			1,492,633				2,108,608				1,619,055
Inventories:
Raw Materials			8,030,485				5,254,103				7,630,291
Work in Process			12,472				1,026,657				12,146
Supplies			165,446				165,446				161,258
Finished Goods			1,875,841				1,858,827				2,489,151
Income Tax Receivable			257,752				-				271,004
Prepaid Expenses and Other Current Assets			179,015				296,851				141,601
Total Current Assets			19,646,646				19,951,130				19,155,433
Property, Plant and Equipment, Less, Accumulated Depreciation of $18,766,538 (03/31/17), $18,650,822 (12/31/16) and $18,397,189 (03/31/16)			4,508,209				4,162,636				4,006,193
Goodwill			413,280				413,280				413,280
Customer Base and Non-Compete Agreement			-				-				28,732
Other Assets			316,242				393,994				352,538
TOTAL ASSETS		$	24,884,377			$	24,921,040			$	23,956,176

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

 

		AS OF								AS OF
		MARCH 31,				AS OF				MARCH 31,
		2017				DECEMBER 31,				2016
		(UNAUDITED)				2016				(UNAUDITED)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short Term Debt		$	656,653			$	42,938			$	702,801
Accounts Payable			934,874				808,696				948,384
Accrued Expenses			451,557				689,177				291,861
Total Current Liabilities			2,043,084				1,540,811				1,943,046
DEFERRED INCOME TAX LIABILITY			126,482				126,482				73,291
Total Liabilities			2,169,566				1,667,293				2,016,337
STOCKHOLDERS’ EQUITY:
Common Stock: $0.30 Par Value,  2,000,000 Shares Authorized, 583,094 Shares Issued,  519,600 Shares Outstanding			174,928				174,928				174,928
Capital in Excess of Par Value			1,288,793				1,288,793				1,288,793
Retained Earnings			21,524,309				22,063,245				20,749,337
Treasury Stock, at Cost,  63,494 Shares			(273,219	)			(273,219	)			(273,219	)
Total Stockholders’ Equity			22,714,811				23,253,747				21,939,839
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	24,884,377			$	24,921,040			$	23,956,176

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

 

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		FOR THE THREE MONTHS ENDED
		MARCH 31,
		2017				2016
Net Sales		$	2,448,600			$	2,962,956
Costs and Expenses:
Cost of Goods Sold			2,256,181				2,340,039
Selling, General and Administrative Expense			878,693				933,355
Amortization Expense			-				36,360
Total Costs and Expenses			3,134,874				3,309,754
Loss from Operations			(686,274	)			(346,798	)
Other Income			18,202				1,743
Loss Before Income Taxes			(668,072	)			(345,055	)
Income Tax Benefit			259,036				138,022
Net Loss		$	(409,036	)		$	(207,033	)
Loss per Common Share (Basic and Diluted)		$	(0.79	)		$	(0.40	)
Dividend per Common Share		$	0.25			$	0.15

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

 

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		FOR THE THREE MONTHS ENDED
		MARCH 31,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss		$	(409,036	)		$	(207,033	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation			115,717				140,152
Decrease (Increase) in:
Accounts Receivable			615,975				563,251
Inventories			(1,779,211	)			(2,113,177	)
Prepaid Expenses and Other Current Assets			117,836				176,649
Income Tax Receivable			(257,752	)			(194,714	)
Other Assets			77,752				35,888
Increase (Decrease) in:
Accounts Payable			45,178				332,446
Accrued Liabilities			(367,520	)			(629,930	)
Net Cash Used in Operating Activities			(1,841,061	)			(1,896,468	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment			(380,290	)			(184,505	)
Net Cash Used in Investing Activities			(380,290	)			(184,505	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Short Term Debt			656,653				499,437
Payments on Short Term Debt			(42,938	)			(379,475	)
Net Cash Provided by Financing Activities			613,715				119,962
NET DECREASE IN CASH			(1,607,636	)			(1,961,011	)
CASH, AT BEGINNING OF PERIOD			9,240,638				8,791,938
CASH, AT END OF PERIOD		$	7,633,002			$	6,830,927
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Income Tax		$	-			$	244,000
Noncash financing activity:
Dividends Declared		$	129,900			$	77,940
Noncash investing activity:
Property and Equipment included in Accounts Payable		$	81,000			$	-

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

 

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 only the adjustments and accruals of a normal recurring nature management believes is 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, 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 three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the current year.

 

Certain minor reclassifications have been made to the consolidated unaudited financial statements for the quarter ended March 31, 2016 to conform to the classifications used for the quarter ended March 31, 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 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 adoption of this ASU did 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)

 

NOTE 2

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)

 

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 adoption of this standard did 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 is currently evaluating the impact of these changes to the Company’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.

 

NOTE 3

LOSS PER COMMON SHARE

 

Basic and diluted loss per common share are 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.

 

		March 31,				March 31,
		2017				2016
Net Sales in Each Segment
Fruit:
Sales to Unaffiliated Customers		$	932,519			$	853,280
Molded Plastics:
Sales to Unaffiliated Customers			1,516,081				2,109,676
Net Sales		$	2,448,600			$	2,962,956

 

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)

 

NOTE 4

BUSINESS SEGMENT DATA (CONTINUED)

 

		March 31,				March 31,
		2017				2016
Identifiable Assets of Each Segment  are Listed Below:
Fruit		$	11,474,015			$	10,517,525
Molded Plastics			4,266,196				5,193,929
Identifiable Assets			15,740,211				15,711,454
General Corporate Assets			9,144,166				8,244,722
Total Assets		$	24,884,377			$	23,956,176

 

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.

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 68.7% of total net sales 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 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 Quarter

 

Paradise, Inc.’s fruit segment net sales for the first quarter of 2017 totaled $932,519 compared to net sales of $853,280 for the similar reporting period of 2016 representing an increase of $79,239 or 9.3%. The fruit segment has two primary products for sale during the first quarter of the year. The first product, glace’ fruitcake ingredients, is produced and sold in bulk quantities to manufacturing bakeries and select supermarkets throughout the United States in time for the traditional Easter holiday season. The other product for sale in the first quarter is finished strawberry items 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 favorable weather and market conditions present during the first quarter of 2017, net sales to this local distributor increased to $526,417 for the first three months of 2017 compared to $370,691 for the first three months of 2016. Strawberry tolling fees accounted for 56.5% of fruit segment sales during the first quarter of 2017 compared to 43.4% of first quarter 2016 sales. While management is pleased to report this increase in net sales, it’s important to note that with less than 10% of annual sales recorded as of March 31, 2017, no reasonable forecast or trend can be developed from this performance. 

 

Paradise Plastics, Inc., (Paradise Plastics) a wholly owned company of Paradise, Inc., which accounted for 31.3% of total net sales to unaffiliated customers for the previous year, generated net sales of $1,516,081 for the three months ended March 31, 2017 compared to $2,109,676 for the similar reporting period of 2016. This represents a decrease of $593,595 or 28.1%. As mentioned in previous filings, Paradise Plastics produces various types of custom molded plastics parts for its customers which are then assembled into finished products by its customers for sale to the end user. Thus, in many cases, continued production and increased sales for these parts are based on their success achieved by the end user. However, in some cases, a change in production or product design may impact the continuation of these sales. As such, it was disclosed in the Company’s 2016 10K filing that beginning during the first quarter of 2017, a major plastics customer decided to transfer production of custom molded parts produced by thermoforming to another supplier who could produce these parts via injection molding. The major benefit to the customer was the ability to significantly lower production cost per part. These parts were previously thermoformed at Paradise Plastics facilities over the past nine years. Paradise Plastics did commit $3 million to construct a new on-site building as well as install necessary injection molding equipment to produce these parts, however, the offer was declined. Paradise, Inc. also disclosed in the Company’s year-end 2016 10K filing that depending on the timing when the new supplier was able to commence production, sales of these parts could decrease by more than $1 million for 2017. As such, with production of these parts completed during the first quarter of 2017, net sales totaled $120,625 compared to $1,757,250 for the twelve months of 2016. This represents a decrease of $1,636,625. Reacting to this situation, management has reduced its plastics staffing and is anticipated labor cost savings will exceed $250,000 for the remainder of 2017 compared to the full twelve months of 2016. 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 market place in order to replace as well as expand its current base of business. Furthermore, management will continue to closely monitor the impact this loss of business will have on its operations throughout the remainder of 2017 in order to determine if any additional changes to operations are warranted. 

 

 

 

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 Quarter (Continued)

 

Consolidated cost of sales as a percentage of net sales increased 13.2% for the first quarter of 2017 compared to the similar reporting period of 2016 primarily as variable cost associated with the decrease in plastics sales mentioned above outpaced the reduction in labor expenses to produce these plastic parts as of March 31, 2017. With the loss of approximately $1.6 million in plastics sales mentioned above, management has taken the necessary steps to reduce its plastics labor expense throughout the first quarter of 2017. The reduction of plastics labor occurring throughout the first quarter of 2017 will result in estimated labor savings in excess of $175,000 by year end. For the fruit segment, cost of sales during the first quarter remained consistent with similar reporting period of 2017. The Company’s primary product, glace’ fruitcake ingredients, does not commence production until the first of June. Thus, with the majority of fruitcake ingredient production contributed over 70% consolidated cost of sales, no determination of cost of sales as a percentage of consolidated sales can be forecast as of the date of this filing.

 

Selling, general & administrative expenses for the first three months of 2017 decreased 5.3% to $878,693 from $933,355 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 first quarter of 2017 totaled $18,202 compared to $1,743 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.

 

Inventory levels at March 31, 2017 were consistent with the similar reporting period of 2016 as inventory at March 31, 2017 and March 31, 2016 were $10,084,244 and $10,292,846, respectively. From time to time at the end of the first quarter, timing differences in the level of inventory on hand may occur as factors related to the harvest and market conditions could impact the delivery of raw fruitcake ingredients that are received from as far away as Southeast Asia. This was not the case as of March 31, 2017. Therefore, management’s primary goal at the end of the first quarter 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 which are largely comprised of liabilities for raw materials for the Company’s fruit and plastics segments as of March 31, 2017 totaled $1,591,527 compared to $1,651,185 for the similar reporting period for 2016. These two account balances are directly related to inventory levels on hand at March 31, 2017 and March 31, 2016 as referenced in the preceding paragraph.

 

We finance our ongoing operations primarily with cash provided by our operating activities. Our principal sources of liquidity are our cash flows provided by operating activities, our existing cash, and a line of credit facility. At March 31, 2017 and December 31, 2016, we had $7.6 million and $9.2 million, respectively, in cash. The decrease in cash during the first quarter of 2017 of $1.6 million is consistent with all prior years as we will continue to use available cash reserves until we start to receive payments from our fruit customers after the start of our shipping season beginning in the fourth quarter of 2017. 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 March 31, 2017 and December 31, 2016. Within this agreement, there are letters of credit with a limit of $1,750,000, of which $656,653 was outstanding at March 31, 2017 and $42,938 at December 31, 2016. The line of credit agreement expires on July 31, 2017.

 

 

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 for the three months ended March 31, 2017 totaled $2,448,600 compared to $2,962,956 for the similar reporting period of 2016, representing a decrease of 17.4%. This decrease 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 quarter of 2017. Correspondingly, cost of sales as a percentage of sales increased 11.9% as the decrease in plastics sales outpaced the necessary labor cost reductions during the first quarter of 2017. Selling, General and Administrative expenses were 5.3% less as of March 31, 2017 compared to March 31, 2016 as savings were achieved from less personnel on hand. Thus, the combination of these events, after applying income tax benefits at March 31, 2017 and March 31, 2016 of $259,036 and $138,022 resulted in a consolidated first quarter 2017 loss of $(409,036) compared to a first quarter 2016 loss of $(207,033).

 

However, it’s important to note that with less than 10% of annual fruit segment net sales processed and shipped as of March 31, 2017 and based on historically sales data which indicates that more than 80% of the Company’s annual fruit segment’s sales will occur during the months of September through November of each year, no realistic forecast or trend as to year end results can be developed as of the 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, 2016. There have been no material changes to our critical accounting estimates during the three months ended March 31, 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 has not yet selected a transition method nor has it determined the effect of the standard on its 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 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 adoption of this ASU did 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 adoption of this standard did 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 is currently evaluating the impact of these changes to the Company’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.

COMMISSION FILE NO. 0-3026

 

PART I.

FINANCIAL INFORMATION

 

Item 3.

Quantitative and Qualitative Disclosure and Market Risk – N/A

 

Item 4.

Controls and Procedures

 

As of March 31, 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 changes in our internal control over financial reporting during the quarter ended March 31, 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

 

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/ Randy S. Gordon		Date:     May 15, 2017
	Randy S. Gordon
	President and Chief Executive Officer
	/s/ Jack M. Laskowitz		Date:     May 15, 2017
	Jack M. Laskowitz
	Chief Financial Officer and Treasurer