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EX-32.2 - EXHIBIT 32.2 - PARADISE INCtv493297_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - PARADISE INCtv493297_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - PARADISE INCtv493297_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - PARADISE INCtv493297_ex31-1.htm

 

 

 

FORM 10-Q

 

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

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

 

For the quarterly period ended March 31, 2018

 

or

 

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

 

Commission File No. 000-03026

 

 

 

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 May 15, 2018 was 519,600 shares.

 

 

 

 

 

 

PARADISE, INC.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

INDEX

 

    PAGE
     
PART I. FINANCIAL INFORMATION  
     
  ITEM 1.  
     
  CONSOLIDATED BALANCE SHEETS:  
     
  Assets  
     
  As of March 31, 2018 (Unaudited), December 31, 2017 and March 31, 2017 (Unaudited) 2
     
  Liabilities and Stockholders’ Equity  
     
  As of March 31, 2018 (Unaudited), December 31, 2017 and March 31, 2017 (Unaudited) 3
     
  CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED):  
     
  For the three-month periods ended March 31, 2018 and 2017 4
     
  CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED):  
     
  For the three-month periods ended March 31, 2018 and 2017 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, 
   2018   DECEMBER 31,   2017 
   (UNAUDITED)   2017   (UNAUDITED) 
ASSETS               
                
CURRENT ASSETS:               
                
Cash  $7,272,479   $8,668,012   $7,633,002 
Accounts Receivable,               
Less, Allowances of $0 (03/31/18), $1,138,431 (12/31/17) and $0 (03/31/17)   1,163,303    2,298,796    1,492,633 
Inventories:               
Raw Materials   8,466,419    6,710,217    8,030,485 
Work in Process   11,265    1,077,718    12,472 
Supplies   194,346    194,346    165,446 
Finished Goods   2,557,545    1,224,998    1,875,841 
Income Tax Receivable   242,044    92,850    257,752 
Prepaid Expenses and Other Current Assets   116,404    224,384    179,015 
                
Total Current Assets   20,023,805    20,491,321    19,646,646 
                
Property, Plant and Equipment,               
Less, Accumulated Depreciation of $19,146,653 (03/31/18), $19,045,405 (12/31/17) and $18,766,538 (03/31/17)   4,236,170    4,271,727    4,508,209 
Goodwill   413,280    413,280    413,280 
Other Assets   406,549    345,415    316,242 
                
TOTAL ASSETS  $25,079,804   $25,521,743   $24,884,377 

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

2

 

 

   AS OF      AS OF 
   MARCH 31,   AS OF   MARCH 31, 
   2018   DECEMBER 31,   2017 
   (UNAUDITED)   2017   (UNAUDITED) 
LIABILITIES AND STOCKHOLDERS’ EQUITY               
                
CURRENT LIABILITIES:               
                
Short Term Debt  $797,254   $541,572   $656,653 
Accounts Payable   569,533    638,896    934,874 
Accrued Expenses   353,266    489,783    451,557 
                
Total Current Liabilities   1,720,053    1,670,251    2,043,084 
                
DEFERRED INCOME TAX LIABILITY   111,983    111,983    126,482 
                
Total Liabilities   1,832,036    1,782,234    2,169,566 
                
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   22,057,266    22,549,007    21,524,309 
Treasury Stock, at Cost, 63,494 Shares   (273,219)   (273,219)   (273,219)
                
Total Stockholders’ Equity   23,247,768    23,739,509    22,714,811 
                
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $25,079,804   $25,521,743   $24,884,377 

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

3

 

 

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   FOR THE THREE MONTHS ENDED 
   MARCH 31, 
   2018   2017 
         
Net Sales  $2,036,263   $2,448,600 
           
Costs and Expenses:          
Cost of Goods Sold   1,813,782    2,256,181 
Selling, General and Administrative Expense   779,515    878,693 
Amortization Expense   4,500    - 
           
Total Costs and Expenses   2,597,797    3,134,874 
           
Loss from Operations   (561,534)   (686,274)
           
Other (Expense) Income   (1,464)   18,202 
           
Loss Before Income Taxes   (562,998)   (668,072)
           
Income Tax Benefit   149,194    259,036 
           
Net Loss  $(413,804)  $(409,036)
           
Loss per Common Share (Basic and Diluted)  $(0.80)  $(0.79)
           
Dividend per Common Share  $0.15   $0.25 

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

4

 

 

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   FOR THE THREE MONTHS ENDED 
   MARCH 31, 
   2018   2017 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net Loss  $(413,804)  $(409,036)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:          
Depreciation and Amortization   105,749    115,717 
Decrease (Increase) in:          
Accounts Receivable   1,135,493    615,975 
Inventories   (2,022,296)   (1,779,211)
Prepaid Expenses and Other Current Assets   107,980    117,836 
Income Tax Receivable   (149,194)   (257,752)
Other Assets   (61,134)   77,752 
Increase (Decrease) in:          
Accounts Payable   (69,360)   45,178 
Accrued Liabilities   (214,457)   (367,520)
           
Net Cash Used in Operating Activities   (1,581,023)   (1,841,061)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of Property and Equipment   (65,692)   (380,290)
           
Net Cash Used in Investing Activities   (65,692)   (380,290)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from Short Term Debt   382,330    656,653 
Payments on Short Term Debt   (131,148)   (42,938)
           
Net Cash Provided by Financing Activities   251,182    613,715 
           
NET DECREASE IN CASH   (1,395,533)   (1,607,636)
           
CASH, AT BEGINNING OF PERIOD   8,668,012    9,240,638 
           
CASH, AT END OF PERIOD  $7,272,479   $7,633,002 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash paid for:          
Income Tax  $-   $- 
           
Noncash financing activity:          
Dividends Declared  $77,940   $129,900 
          
Noncash investing activity:          
Property and Equipment included in Accounts Payable  $-   $81,000 

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

5

 

 

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1BASIS 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 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, 2017. 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, 2018 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, 2017 to conform to the classifications used for the quarter ended March 31, 2018. 

 

NOTE 2IMPACT 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 revenue guidance is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted as of the original effective date (annual reporting periods beginning after December 15, 2016). The ASU may be applied retrospectively to historical periods presented or as a cumulative-effect adjustment as of the date of adoption. The Company adopted the new standard on January 1, 2018 on a full retrospective basis. There was no material financial impact from adopting the new revenue standard.

 

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. 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.

 

6

 

 

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 2IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)

  

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 3LOSS 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.

 

NOTE 4REVENUE

 

The Company recognizes revenue from the sale of candied fruit products which are sold to manufacturing bakers, institutional users and retailers. The Company also recognizes revenue from the sale of molded plastics to unaffiliated customers. Revenue is recognized upon the shipment or delivery of goods depending on the agreed upon terms with the customer and is reported net of applicable provisions for discounts, returns, incentives and allowances.

 

The Company recognizes revenue when performance obligations are satisfied by transferring control of the goods to customers. Control is transferred upon shipment or delivery of the goods to the customer. At the time of delivery, the customer is invoiced with payment terms which are commensurate with the customer’s credit profile. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs.

 

The Company assesses the goods and services promised in its customers’ purchase orders and identifies a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Company considers all the goods or services promised, whether explicitly stated or implied based on customary business practices.

 

7

 

 

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 5BUSINESS 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, 
   2018   2017 
         
Net Sales in Each Segment          
           
Fruit:          
Sales to Unaffiliated Customers  $502,603   $932,519 
           
Molded Plastics:          
Sales to Unaffiliated Customers   1,533,660    1,516,081 
           
Net Sales  $2,036,263   $2,448,600 

 

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.

 

8

 

 

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 5BUSINESS SEGMENT DATA (CONTINUED)

 

   March 31,   March 31, 
   2018   2017 
         
Identifiable Assets of Each Segment are Listed Below:          
           
Fruit  $11,812,208   $11,474,015 
           
Molded Plastics   4,416,137    4,266,196 
           
Identifiable Assets   16,228,345    15,740,211 
           
General Corporate Assets   8,851,459    9,144,166 
           
Total Assets  $25,079,804   $24,884,377 

 

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.

 

9

 

 

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 78% of total net sales during 2017. 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.

 

10

 

 

PARADISE, INC. COMMISSION FILE NO. 0-3026

 

PART I.FINANCIAL INFORMATION

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

The First Quarter

  

Paradise, Inc.’s fruit segment net sales for the first quarter of 2018 totaled $503,603 compared to net sales of $932,519 for the similar reporting period of 2017 representing a decrease of $428,916. The first reason for this decrease relates to less sales of finished strawberry products produced and sold exclusively to a local distributor 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 unfavorable market conditions and a shortage of available labor during the first quarter of 2018, tolling fees to this local distributor totaled $275,211 for the three months ended March 31, 2018 compared to $526,417 for the three months ended March 31, 2017. Strawberry tolling fees account for less than 5% of annual fruit segment net sales and were 54.8% of fruit segment sales during the first quarter of 2018 compared to 56.5% of first quarter 2017. The second factor that impacted the decline in fruit segment net sales related to an increase in retail returns received from customers during the first quarter of 2018. Management’s standard practice, as disclosed within its filings, is to provide for estimated product returns by applying an allowance against Accounts Receivable for the invoiced price of the return. In addition, a provision to recognize a related estimate of finished goods returns is added back to inventory. The increase in retail returns resulted in two actions; first, management recorded additional $146,926 reduction of revenue to recognize the increase in product returns. Secondly, management increased its estimate of the allowance for future retail returns by an additional 1.0% of total retail net sales.

 

Paradise Plastics, Inc., a wholly owned company of Paradise, Inc., which accounted for 22% of total net sales to unaffiliated customers for the previous year, generated net sales of $1,533,660 for the three months ended March 31, 2018 compared to $1,516,081 for the three months ended March 31, 2017. Plastics net sales continued to rebound from the negative impact absorbed from the loss of a portion of business from a major plastics customer’s decision to transfer production to another supplier that could produce these parts in a more cost effective method via injection molding. Paradise’s management offered to invest $3 million to construct a building and purchase the necessary equipment to retain this business, however, the offer was declined. With production of these parts ending in the latter stages of the first quarter of 2017, net sales decreased $1.6 million for the remainder of 2017. However, with increased demand from this major customer along with recent successes in developing new accounts over the past two operating quarters, management is confident it has taken the necessary actions to provide additional revenue for the remainder of 2018.

 

Consolidated cost of sales as a percentage of net sales decreased 3.0% for the first quarter of 2018 compared to the similar reporting period of 2017 as higher value retail returns received from fruit segment customers represented a greater percentage of overall inventory as of March 31, 2018 compared to March 31, 2017. However, no trend or forecast can be determined regarding cost of sales for the remainder of 2018. Only after the Company completes processing raw fruit materials into finished drum inventory will the Company be able to determine the increase or decrease in the cost of sales. It is important to note that since annual production is not scheduled to commence until June 1, 2018, management allocates a percentage of fruit segment production expenses back into inventory based on a percentage of completion calculation. As of March 31, 2018, $1,187,446 of operating expenses have been allocated to inventory compared to $1,046,598 as of March 31, 2017.

 

11

 

 

PARADISE, INC. COMMISSION FILE NO. 0-3026

 

PART I.FINANCIAL INFORMATION

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

The First Quarter (Continued)

 

Selling, general & administrative expenses for the first three months of 2018 decreased 11.3% to $779,515 from $878,693 for the first three months of 2017 as Paradise, Inc. continued to receive savings from management’s decision to outsource all payroll and employee benefit program administration to a national provider of these services during the first quarter of 2017.

 

Other Significant Items

 

Accounts Receivable as of March 31, 2018 totaled $1,163,303 compared to $1,492,633 as of March 31, 2017. This decrease of $329,330 is primarily related to the decrease in tolling fees earned for the production of fresh strawberry products processed on behalf of a local distributor of these products.

 

Inventory levels as of March 31, 2018 increased $945,331 or 9.2% to $11,229,575 from $10,284,244 as of March 31, 2017. The primary reason for this was due to an increase in retail returns of approximately $500,000 during the first quarter of 2018. In addition, increased sales demand during the fourth quarter of 2017 and the first quarter of 2018 for plastics custom molding parts resulted in an additional $300,000 of plastics inventory as of March 31, 2018 compared to March 31, 2017. The remaining increase of approximately $150,000 was related to the receipt of raw fruit materials from the Company’s overseas supplier during the first quarter of 2018 compared to the first quarter of 2017.

 

Short Term Debt as of March 31, 2018 increased $140,601 to $797,254 from $656,653 and primarily consist of letters of credit issued by the Company’s banking institution to Paradise, Inc.’s overseas supplier of certain raw fruit materials. The bank makes direct payments to the overseas supplier and then charges Paradise, Inc. after receipt of this raw fruit materials with term extending out 180 days. As the terms in payments are consistent from period to period, the increase balance as of March 31, 2018 compared to the balance as of March 31, 2017 is a function of timing as a greater percentage of product was received during the fourth quarter of 2017.

 

Accounts Payable as of March 31, 2018 decreased to $569,533 compared to $934,874 as of March 31, 2017 as several major suppliers of domestic fruit and plastics raw inventory were received in April of 2018 compared to March of 2017.

 

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, 2018 and December 31, 2017, we had $7.3 million and $8.7 million, respectively, in cash. The decrease in cash during the first quarter of 2018 of $1.4 million is consistent with 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 the year. Additionally, we have a revolving line of credit with a maximum limit of $12 million and a borrowing limit of 80% of the Company’s eligible receivables plus 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, 2018 and December 31, 2017. Within this agreement, there are letters of credit with a limit of $1,750,000, of which $797,254 was outstanding at March 31, 2018 and $541,572 at December 31, 2017. The line of credit agreement expires on July 31, 2019.

 

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PARADISE, INC. COMMISSION FILE NO. 0-3026

 

PART I.FINANCIAL INFORMATION

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Summary

 

Paradise, Inc.’s consolidated net sales for the three months ended March 31, 2018 decreased $412,337 to $2,036,263 from $2,448,600 for the similar reporting period of 2017, representing a decrease of 16.8%. This decrease is primarily related to the following two factors. First, retail returns from customers were slightly higher than estimated resulting in a reduction of revenue of $146,926. Secondly, unfavorable market conditions and a shortage of available labor resulted in tolling fees of $275,211. Correspondingly, cost of sales as a percentage of sales decreased 3.0% as increased returns of higher valued retail glace’ fruit represented a greater percentage of ending inventory as of March 31, 2018 compared to March 31, 2017. Selling, general and administrative expenses decreased 11.3% as of March 31, 2018 compared to March 31, 2017 as savings continued to be achieved from outsourcing payroll and employee benefits to a national provider of these services during the first quarter of 2017. Thus, the combination of these events, after applying income tax benefits at March 31, 2018 and March 31, 2017 of $149,194 and $259,036 resulted in a consolidated first quarter 2018 loss of $(413,804) compared to a first quarter 2017 loss of $(409,036).

 

However, it’s important to note that with less than 10% of anticipated 2018 fruit segment net sales processed and shipped as of March 31, 2018 and based on historical 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, 2017. There have been no material changes to our critical accounting estimates during the three months ended March 31, 2018.

 

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 revenue guidance is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted as of the original effective date (annual reporting periods beginning after December 15, 2016). The ASU may be applied retrospectively to historical periods presented or as a cumulative-effect adjustment as of the date of adoption. The Company adopted the new standard on January 1, 2018 on a full retrospective basis. There was no material financial impact from adopting the new revenue standard.

 

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PARADISE, INC. COMMISSION FILE NO. 0-3026

 

PART I.FINANCIAL INFORMATION

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Impact of Recently Issued Accounting Pronouncements (Continued)

 

In 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. 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.

 

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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, 2018, 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, 2018.

 

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.

 

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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

 

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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, 2018
  Randy S. Gordon      
  President and Chief Executive Officer      
         
  /s/ Jack M. Laskowitz   Date: May 15, 2018
  Jack M. Laskowitz      
  Chief Financial Officer and Treasurer      

 

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