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 September 30, 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 ¨

 

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 November 14, 2017 was 519,600 shares.

 

 

 

PARADISE, INC.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

INDEX

 

			PAGE
PART I.	FINANCIAL INFORMATION
	ITEM 1.
	CONSOLIDATED BALANCE SHEETS:
	Assets
	As of September 30, 2017 (Unaudited), December 31, 2016 and September 30, 2016 (Unaudited)		2
	Liabilities and Stockholders’ Equity
	As of September 30, 2017 (Unaudited), December 31, 2016 and September 30, 2016 (Unaudited)		3
	CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED):
	For the three-month periods ended September 30, 2017 and 2016		4
	For the nine-month periods ended September 30, 2017 and 2016		5
	CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED):
	For the nine-month periods ended September 30, 2017 and 2016		6
	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		7 – 10
	ITEM 2.
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		11 – 16
	ITEM 3.
	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK – N/A		16
	ITEM 4.
	CONTROLS AND PROCEDURES		16
PART II.	OTHER INFORMATION
	ITEMS 1 – 6.		17
SIGNATURES			18

 

  

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		AS OF								AS OF
		SEPTEMBER 30,				AS OF				SEPTEMBER 30,
		2017				DECEMBER 31,				2016
		(UNAUDITED)				2016				(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash		$	1,085,701			$	9,240,638			$	1,138,700
Accounts Receivable,
Less, Allowances of $0 (09/30/17), $1,215,153 (12/31/16) and $0 (09/30/16)			5,409,122				2,108,608				6,378,274
Inventories:
Raw Materials			7,669,182				5,254,103				7,605,280
Work in Process			394,889				1,026,657				333,884
Supplies			165,413				165,446				161,258
Finished Goods			4,087,294				1,858,827				3,897,230
Income Tax Receivable			655,304				-				-
Prepaid Expenses and Other Current Assets			351,500				296,851				455,684
Total Current Assets			19,818,405				19,951,130				19,970,310
Property, Plant and Equipment,
Less, Accumulated Depreciation of $18,958,502 (09/30/17), $18,650,822 (12/31/16) and $18,557,477 (09/30/16)			4,342,539				4,162,636				3,919,133
Goodwill			413,280				413,280				413,280
Other Assets			375,718				393,994				381,149
TOTAL ASSETS		$	24,949,942			$	24,921,040			$	24,683,872

  

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

 

		AS OF								AS OF
		SEPTEMBER 30,				AS OF				SEPTEMBER 30,
		2017				DECEMBER 31,				2016
		(UNAUDITED)				2016				(UNAUDITED)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short Term Debt		$	428,346			$	42,938			$	291,838
Accounts Payable			1,182,998				808,696				712,962
Accrued Liabilities			536,887				689,177				607,603
Income Taxes Payable			-				-				193,185
Total Current Liabilities			2,148,231				1,540,811				1,805,588
DEFERRED INCOME TAX LIABILITY			126,482				126,482				73,291
Total Liabilities			2,274,713				1,667,293				1,878,879
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			21,484,727				22,063,245				21,614,491
Treasury Stock, at Cost, 63,494 Shares			(273,219	)			(273,219	)			(273,219	)
Total Stockholders’ Equity			22,675,229				23,253,747				22,804,993
TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY		$	24,949,942			$	24,921,040			$	24,683,872

 

 

 

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		FOR THE THREE MONTHS ENDED
		SEPTEMBER 30,
		2017				2016
Net Sales		$	7,644,130			$	8,884,152
Costs and Expenses:
Cost of Goods Sold			6,225,065				6,173,066
Selling, General and Administrative Expense			1,007,875				1,098,845
Amortization Expense			3,000				2,000
Total Costs and Expenses			7,235,940				7,273,911
Income from Operations			408,190				1,610,241
Other Expenses			(2,037	)			(30,856	)
Income from Operations Before Income Taxes			406,153				1,579,385
Provision for Income Taxes			164,398				631,753
Net Income		$	241,755			$	947,632
Income per Common Share (Basic and Diluted)		$	0.47			$	1.82
Dividend per Common Share		$	0.00			$	0.00

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

  

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		FOR THE NINE MONTHS ENDED
		SEPTEMBER 30,
		2017				2016
Net Sales		$	11,444,179			$	13,950,369
Costs and Expenses:
Cost of Goods Sold			9,749,021				10,038,462
Selling, General and Administrative Expense			2,484,532				2,774,766
Amortization Expense			3,000				68,203
Total Costs and Expenses			12,236,553				12,881,431
(Loss) Income from Operations			(792,374	)			1,068,938
Other Income			44,678				19,846
(Loss) Income from Operations Before Income Taxes			(747,696	)			1,088,784
Benefit (Provision) for Income Taxes			299,078				(435,513	)
Net (Loss) Income		$	(448,618	)		$	653,271
(Loss) Income per Common Share (Basic and Diluted)		$	(0.86	)		$	1.26
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 NINE MONTHS ENDED
		SEPTEMBER 30,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income		$	(448,618	)		$	653,271
Adjustments to Reconcile Net (Loss) Income to Net Cash Used in Operating Activities:
Depreciation and Amortization			310,785				367,329
(Increase) Decrease in:
Accounts Receivable			(3,300,514	)			(4,195,968	)
Inventories			(4,011,745	)			(3,817,983	)
Prepaid Expenses			(54,649	)			(137,434	)
Other Assets			15,276				5,166
Income Tax Asset			(655,304	)			-
Increase (Decrease) in:
Accounts Payable			374,302				101,874
Accrued Liabilities			(152,290	)			33,227
Net Cash Used in Operating Activities			(7,922,757	)			(6,990,518	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment			(487,688	)			(293,779	)
Net Cash Used in Investing Activities			(487,688	)			(293,779	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Short Term Debt			(680,763	)			(863,527	)
Proceeds from Short Term Debt			1,066,171				572,526
Dividends Paid			(129,900	)			(77,940	)
Net Cash Provided by (Used in) Financing Activities			255,508				(368,941	)
NET DECREASE IN CASH			(8,154,937	)			(7,653,238	)
CASH, AT BEGINNING OF PERIOD			9,240,638				8,791,938
CASH, AT END OF PERIOD		$	1,085,701			$	1,138,700
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Income Tax		$	357,510			$	353,346

 

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 all adjustments and accruals of a normal recurring nature that management believes are necessary to fairly state the operating results for the respective periods. The notes to the unaudited consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements contained in the Company’s Form 10-K for the year ended December 31, 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 nine months ended September 30, 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 three and nine months ended September 30, 2016 to conform to the classifications used for the three and nine months ended September 30, 2017.

 

 

NOTE 2

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 retrospectively for the Company on January 1, 2018, which is the effective date for public companies. 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 is finalizing reviews and working on implementing the process, policy and disclosure changes that will go into effect January 1, 2018. At this time, the Company does not expect a material financial impact from adopting the new standard.

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU2015-03”). The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this standards update. The Company evaluated this ASU and began early adoption beginning with the annual period ended December 31, 2016. The adoption of this ASU did not have a material impact on the Company’s financial position or results of operations.

 

 

 

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

  

NOTE 2

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 continues to make progress in their due diligence and assessment of the impact of the new standard across its operations and the consolidated financial statements, which will consist primarily of recording right of use assets and corresponding lease liabilities on the balance sheet for operating leases.

 

Except as noted above, the Company’s management does not believe that recent codified pronouncements by the Financial Accounting Standards Board (“FASB”) (including its EITF), the AICPA or the Securities and Exchange Commission will have a material impact on the Company’s current or future consolidated financial statements.

 

NOTE 3

INCOME PER COMMON SHARE

 

Basic and diluted income per common share is based on the weighted average number of shares 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
		September 30,				September 30,
		2017				2016
Net Sales in Each Segment
Fruit:
Sales to Unaffiliated Customers		$	6,605,247			$	7,389,005
Molded Plastics:
Sales to Unaffiliated Customers			1,038,883				1,495,147
Net Sales		$	7,644,130			$	8,884,152

 

		Nine months ended				Nine months ended
		September 30,				September 30,
		2017				2016
Net Sales in Each Segment
Fruit:
Sales to Unaffiliated Customers		$	7,881,622			$	8,643,663
Molded Plastics:
Sales to Unaffiliated Customers			3,562,557				5,306,706
Net Sales		$	11,444,179			$	13,950,369

 

  

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

  

NOTE 4

BUSINESS SEGMENT DATA (CONTINUED)

 

The Company does not prepare operating profit or loss information on a segment basis for internal use, until the end of each year. Due to the seasonal nature of the fruit segment, management believes that it is not practical to prepare this information for interim reporting purposes. Therefore, reporting is not required by accounting principles generally accepted in the United States of America.

 

		September 30,				September 30,
		2017				2016
Identifiable Assets of Each Segment are Listed Below:
Fruit		$	17,733,521			$	17,678,419
Molded Plastics			4,020,398				4,399,853
Identifiable Assets			21,753,919				22,078,272
General Corporate Assets			3,196,023				2,605,600
Total Assets		$	24,949,942			$	24,683,872

 

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 for a period of eight to ten weeks 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 Nine Months

 

Paradise, Inc.’s fruit segment net sales for the first nine months of 2017 decreased 8.9% to $7,881,622 from $8,643,663 for the similar nine month reporting period of 2016. This decrease is primarily related to timing differences in the receipt of customer’s purchase orders and the corresponding shipment of these orders. Changes in dates of opening orders from long-time customers between interim reporting periods will have a direct impact on net sales comparisons. Paradise, Inc. recognizes net sales generally upon receipt of its products by its customers. To illustrate this in financial terms, fruit segment shipments to customers during the first five business days of October, 2017 were $2,193,260 compared to $242,241 for the first five business days of October, 2016. Thus, extending the reporting period into the first week of October, 2017 and October, 2016 would have resulted in increased fruit segment net sales of 13.4% compared to the 8.9% decrease reported above. Management has consistently disclosed that interim filings are not reliable financial indicators of year-end performance. Only after a full year’s selling season which eliminates such timing differences related to dates of opening orders shipped, received and placed in stores by our customers, will the Company have the necessary sales data to determine if its sales and marketing efforts for the current year were successful.

 

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 $3,562,557 for the nine months ended September 30, 2017 compared to $5,306,706 for the similar reporting period of 2016. This represents a decrease of $1,744,149 or 32.9%. Paradise Plastics produces various types of custom molded parts for its customers which are then assembled into finished products by its customers for sale to the end user. In many cases, continued production and increased sales for these parts are based on their success achieved by the end user. Furthermore, in some cases, a change in product design may impact the continuation of these sales. As disclosed in previous filings, beginning first quarter of 2017, a major plastics customer decided to transfer production of custom molded parts produced by thermoforming to an out of state supplier who could produce these parts via injection molding. The major benefit to the customer was the ability to significantly lower their cost per unit. These parts had been previously thermoformed at Paradise Plastics facilities over the past nine years. Management in discussions with this customer offered to construct a new on-site building as well as purchase the necessary injection molding equipment to continue production, however, the offer was declined. With production of these parts coming to an end during the first quarter of 2017, net sales totaled $120,625 compared to $1,757,250 for the entire twelve months of 2016. This represents a decrease of $1,636,625 and is the primary reason for the decrease in plastics sales mentioned above. Reacting to this situation, management commenced an orderly reduction of hourly personnel associated with this loss of business during the first and second quarters of 2017. Now with the reduction in hourly personnel in place and along with the recent planned retirement of a Senior Vice President - Plastics, management has achieved labor savings in excess of $250,000 as of the date of this filing. 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 Southeast in order to replace this business. Management continues 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. If the Company is unable to replace these lost sales, its ability to recover goodwill of $413,280 related to Paradise Plastics could be affected.

  

 

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

PART I.

FINANCIAL INFORMATION

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

The First Nine Months (Continued)

 

Consolidated cost of sales as a percentage of net sales increased 13.3% for the nine months ending September 30, 2017 compared to the similar reporting period of 2016. This is less than the 15% increase in cost of sales reported in the Company’s second quarter filing as variable cost associated with the decrease in plastics sales still continued to outpace the reduction in labor and other variable expenses. However, as fruit segment production, representing more than 70% of cost of sales, continues to produce inventory for sale well into the fourth quarter of the year, no meaningful forecast of consolidated cost of sales can be reported until a full twelve months accounting of operations is completed.

 

Selling, general & administrative expenses for the nine months ending September 30, 2017 decreased 11.7% to $2,484,532 from $2,774,766 for the nine months ending September 30, 2016 as Paradise, Inc. continues to receive payroll savings due to fewer employees working within these departments.

 

Other Significant Items

 

Other Income for the first nine months of 2017 totaled $44,678 compared to $19,846 for the similar reporting period of 2016. This increase is related to the cash surrender value of two insurance policies owned by the Company on behalf of two senior executives who have been employed by the Company for over fifty years. Paradise, Inc. is the beneficiary as to the premiums paid on behalf of these two policies.

 

Inventory on hand increased by $319,126 to $12,316,778 as of September 30, 2017 from $11,997,652 as of September 30, 2016. During the year, timing differences in levels of inventory may fluctuate due to the following two factors. First, changes in harvest and or market conditions of raw fruit commodities received from as far away as Southeast Asia may overlap into different quarterly filings period. Secondly, timing differences in levels of inventory will occur as shipments of fruit segment products to retail customers will also overlap quarterly filing dates. For the current reporting period, both factors were present as an increase in raw fruit materials received from overseas suppliers during the third quarter of 2017 along with a delay in shipments to retail customers until the fourth quarter of 2017 more than offset the decrease in plastics inventory levels as of September 30, 2017.

 

Short Term Debt and Accounts Payable balances largely comprised of liabilities for raw fruit materials increased $606,544 to $1,611,344 as of September 30, 2017 compared to $1,004,800 as of September 30, 2016. These two account balances are directly related to the increase in fruit inventory levels on hand as of September 30, 2017 as a greater percentage of raw fruit commodities were received from our international and domestic suppliers during the third quarter of 2017 compared to the similar period of 2016.

 

On July 28, 2017, Paradise, Inc. renewed its revolving line of credit with SunTrust Bank through July 31, 2019. This renewal provides for a maximum limit of $12 million and a borrowing limit of 80% of the Company’s eligible receivables plus the lesser of $6,000,000 or 50% of the Company’s eligible inventory from January 1 to May 31 and 60% from June 1 to December 31 of each year. Within this agreement are letters of credit with a limit of $1,750,000. The agreement is secured by all of the assets of the Company and requires that certain conditions are met for the Company to continue borrowing, including debt service coverage and debt to equity ratios and other financial covenants including an agreement not to encumber a mortgage on the property without bank approval. Interest is payable monthly at the bank’s LIBOR plus 1.75%.

 

 

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

PART I.

FINANCIAL INFORMATION

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Other Significant Items (Continued)

 

Paradise, Inc. finances ongoing operations primarily with cash provided by our operating activities which are seasonal in nature. Our principal sources of liquidity are our cash flows provided by operating activities, our existing cash, and a line of credit facility. At September 30, 2017 and December 31, 2016, we had $1,085,701 and $9,240,638, respectively, in cash. Additionally, we have a revolving line of credit with a maximum limit of $12 million and a borrowing limit of 80% of the Company’s eligible receivables plus up to 60% of the Company’s eligible inventory, of which $0 was outstanding at September 30, 2017 and $0 at December 31, 2016. Within this agreement, there are letters of credit with a limit of $1,750,000, of which $428,346 was outstanding at September 30, 2017 and $42,938 at December 31, 2016. The line of credit agreement expires in July, 2019. Net cash decreased by $8,154,937 for the nine months ended September 30, 2017 compared to $7,653,238 for the nine months ended September 30, 2016 as the Company needs approximately $1 million per month to acquire inventory and finance operations during the first nine months of the year.

 

Summary

 

Paradise Inc.’s consolidated net sales decreased to $11,444,179 for the first nine months of 2017 from $13,950,369 for the first nine months of 2016. This decrease is due to two factors. First, timing differences in shipments of retail fruit orders were received into the first week of October, 2017. As such, fruit segment sales for the first 5 days of October, 2017 totaled $2,193,260 compared to $242,241 for the first five days of October 2016. Secondly, 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 is the primary reason that plastics segment sales decreased by $1,744,149 or 32.9% for the first nine months of 2017 compared to the similar reporting period of 2016. Correspondingly, cost of sales increased 13.2% as the decline in plastics sales outpaced the orderly reductions of labor cost that were phased in during the first and second quarters of 2017. Thus, the overall impact of this activity resulted in a net loss of $(448,618) for the nine months ending September 30, 2017 compared to net income of $653,271 for the nine months ending September 30, 2016.

 

 

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, 2016. There have been no material changes to our critical accounting estimates during the nine months ended September 30, 2017.

 

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 retrospectively for the Company on January 1, 2018, which is the effective date for public companies. 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 is finalizing reviews and working on implementing the process, policy and disclosure changes that will go into effect January 1, 2018. At this time, the Company does not expect a material financial impact from adopting the new standard.

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU2015-03”). The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this standards update. The Company evaluated this ASU and began early adoption beginning with the annual period ended December 31, 2016. The adoption of this ASU did not have a material impact on the Company’s financial position or results of operations.

 

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which amends FASB ASU Topic 330, Inventory. This ASU requires entities to measure inventory at the lower of cost or net realizable value and eliminates the option that currently exists for measuring inventory at market value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This ASU should be applied prospectively with earlier application permitted. The 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.

 

 

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

PART I.

FINANCIAL INFORMATION

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Recently Issued Accounting Pronouncements (Continued)

 

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 continues to make progress in their due diligence and assessment of the impact of the new standard across its operations and the consolidated financial statements, which will consist primarily of recording right of use assets and corresponding lease liabilities on the balance sheet for operating leases.

 

Except as noted above, the Company’s management does not believe that recent codified pronouncements by the Financial Accounting Standards Board (“FASB”) (including its EITF), the AICPA or the Securities and Exchange Commission will have a material impact on the Company’s current or future consolidated financial statements.

  

Item 3.

Quantitative and Qualitative Disclosure and Market Risk – N/A

 

 

Item 4.

Controls and Procedures

 

As of September 30, 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 nine months ended September 30, 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:    November 14, 2017
	Randy S. Gordon
	President and Chief Executive Officer
	/s/ Jack M. Laskowitz		Date:    November 14, 2017
	Jack M. Laskowitz
	Chief Financial Officer and Treasurer