FORM 10-Q/A

______________

 

AMENDED REPORT

_______________

 

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, 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 August 20, 2018 was 519,600 shares.

 

 

 

Explanatory Note

  

This Amended Report on Form 10-Q/A (this “Form 10Q/A”) amends and restates certain items noted below in the Quarterly Report on Form 10-Q of Paradise, Inc. (the “Company”) for the three months ended March 31, 2018, as originally filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2018 (the “Original Filing”). This Form 10Q/A restates the Company’s Consolidated Financial Statements and related disclosures as of and for the three months ended March 31, 2018 to reflect the correction of an error caused by a material weakness in internal control in the previously reported financial statements related to the Company’s timeliness in issuing credit memos for customer product returns, allowances, discounts and incentives.

 

Background and Effect of Restatement

  

In connection with preparing its financial statements for the quarter ending June 30, 2018, the Company determined that this material weakness in internal control in recording the timeliness of credit memos related to customer returns, allowances, discounts and incentives resulted in an overstatement of year end December 31, 2017 income before provision for income taxes of approximately $445,000. Additionally, this error resulted in an overstatement of the loss before income tax benefit for March 31, 2018 of approximately $90,000. The Company is currently reviewing its internal control procedures and based upon the results of this review will implement additional internal control procedures that will strengthen the Company’s ability to prevent this material weakness from occurring in the future.

 

See Note 2 to the Consolidated Financial Statements included in this Form 10-Q/A for additional information and a reconciliation of the previously reported amounts in the Original Filing to the restated amounts this Form 10-Q/A.

  

 

 

Items Amended in this Filing

 

For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing, as amended, in its entirety; however, this Form 10-Q/A amends and restates the following Items to the extent necessary to reflect the adjustments discussed above and make corresponding revisions to the Company’s financial data cited elsewhere in this Form 10-Q/A:

 

·

Part I, Item 1 – Financial Statements

·

Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

·

Part I, Item 4 – Controls and Procedures

·

Part II, Item 6 – Exhibits

·

Signatures

 

Except as described above, no other changes have been made to the Original Filing. This Form 10-Q/A speaks as of the date of the Original Filing and does not reflect events that may have occurred after the date of the Original Filing or modify or update any disclosures that may have been affected by subsequent events.

 

The Company is also concurrently filing an amended Annual Report on Form 10-K/A for its fiscal year ended December 31, 2017 to amend and restate the previously issued annual and interim financial statements as a result of the same accounting error described above.

 

 

PARADISE, INC.

 

FORM 10-Q - A

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 – 13
	ITEM 2.
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14 – 17
	ITEM 3.
	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK – N/A	18
	ITEM 4.
	CONTROLS AND PROCEDURES	18
PART II.	OTHER INFORMATION
	ITEMS 1 – 6.	19
SIGNATURES		20

 

 

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)
		( Restated )				( Restated )
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				1,870,649				1,492,633
Inventories:
Raw Materials			8,466,419				5,855,658				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				2,400,924				1,875,841
Income Tax Receivable			334,956				209,616				257,752
Prepaid Expenses and Other Current Assets			116,404				224,384				179,015
Total Current Assets			20,116,717				20,501,307				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		$	25,172,716			$	25,531,729			$	24,884,377

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

  

		AS OF								AS OF
		MARCH 31,				AS OF				MARCH 31,
		2018				DECEMBER 31,				2017
		(UNAUDITED)				2017				(UNAUDITED)
		( Restated )				( Restated )
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			709,165				828,914				451,557
Total Current Liabilities			2,075,952				2,009,382				2,043,084
DEFERRED INCOME TAX LIABILITY			83,687				83,687				126,482
Total Liabilities			2,159,639				2,093,069				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			21,822,575				22,248,158				21,524,309
Treasury Stock, at Cost,  63,494 Shares			(273,219	)			(273,219	)			(273,219	)
Total Stockholders’ Equity			23,013,077				23,438,660				22,714,811
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	25,172,716			$	25,531,729			$	24,884,377

 

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,
		2018				2017
		( Restated )
Net Sales		$	2,126,278			$	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			(471,519	)			(686,274	)
Other (Expense) Income			(1,464	)			18,202
Loss Before Income Taxes			(472,983	)			(668,072	)
Income Tax Benefit			125,340				259,036
Net Loss		$	(347,643	)		$	(409,036	)
Loss per Common Share (Basic and Diluted)		$	(0.67	)		$	(0.79	)
Dividend per Common Share		$	0.15			$	0.25

  

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,
		2018				2017
		( Restated )
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss		$	(347,643	)		$	(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			707,346				615,975
Inventories			(1,700,930	)			(1,779,211	)
Prepaid Expenses and Other Current Assets			107,980				117,836
Income Tax Receivable			(125,340	)			(257,752	)
Other Assets			(61,134	)			77,752
Increase (Decrease) in:
Accounts Payable			(69,360	)			45,178
Accrued Liabilities			(197,691	)			(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)

 

 

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 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 2:

RESTATEMENT OF CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

The Company is filing this Amendment to our Quarterly Report on Form 10-Q/A for the three months ended March 31, 2018 due to the fact that the Company has determined that a material weakness in internal control relating to the recording of customer returns, allowances, discounts and incentives has resulted in an overstatement of year end income before provision of income taxes of approximately $445,000 as of December 31, 2017 and an overstatement of loss before income taxes of approximately $90,000 for the first quarter ending March 31, 2018. As of the date of this filing, the Company is working diligently to determine the impact of this material weakness will have on the Company’s Form 10-Q/A for the second quarter report ending June 30, 2018.

 

 

 

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 2:

RESTATEMENT OF CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

 

Following is the effect of the restatement on the Company’s March 31, 2018 unaudited financial statements:

 

		As Previously
Balance Sheet		Reported				Adjustment				As Restated
Current Assets:
Cash		$	7,272,479			$	-			$	7,272,479
Accounts Receivable			1,163,303				-				1,163,303
Inventories:
Raw Materials			8,466,419				-				8,466,419
Work in Process			11,265				-				11,265
Supplies			194,346				-				194,346
Finished Goods			2,557,545				-				2,557,545
Income Tax Receivable			242,044				92,912				334,956
Prepaid Expenses and Other Current Assets			116,404				-				116,404
Total Current Assets			20,023,805				92,912				20,116,717
Property, Plant and Equipment			4,236,170				-				4,236,170
Goodwill			413,280				-				413,280
Other Assets			406,549				-				406,549
TOTAL ASSETS		$	25,079,804			$	92,912			$	25,172,716

 

 

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 2:

RESTATEMENT OF CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

 

		As Previously
Balance Sheet		Reported				Adjustment				As Restated
Current Liabilities:
Short-Term Debt		$	797,254			$	-			$	797,254
Accounts Payable			569,533				-				569,533
Accrued Expenses			353,266				355,899				709,165
Total Current Liabilities			1,720,053				355,899				2,075,952
Deferred Income Tax Liability			111,983				(28,296	)			83,687
Total Liabilities			1,832,036				327,603				2,159,639
Stockholders’ Equity:
Common Stock, $.30 Par Value, 2,000,000 Shares Authorized, 583,094 Shares Issued and  519,600 Shares Outstanding			174,928				-				174,928
Capital in Excess of Par Value			1,288,793				-				1,288,793
Retained Earnings			22,057,266				(234,691	)			21,822,575
Treasury Stock, at Cost, 63,494 Shares			(273,219	)			-				(273,219	)
Total Stockholders’ Equity			23,247,768				(234,691	)			23,013,077
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	25,079,804			$	92,912			$	25,172,716

 

 

 

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 2:

RESTATEMENT OF CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

 

		As Previously
Income Statement		Reported				Adjustment				As Restated
Net Sales		$	2,036,263			$	90,015			$	2,126,278
Costs and Expenses:
Cost of Goods Sold			1,813,782				-				1,813,782
Selling, General and Administrative Expenses			779,515				-				779,515
Amortization Expense			4,500				-				4,500
Total Costs and Expenses			2,597,797				-				2,597,797
Loss from Operations			(561,534	)			90,015				(471,519	)
Other (Expense) Income			(1,464	)			-				(1,464	)
Loss Before Income Taxes			(562,998	)			90,015				(472,983	)
Income Tax Benefit			149,194				(23,854	)			125,340
Net Loss		$	(413,804	)		$	66,161			$	(347,643	)
Loss per Common Share (Basic and Diluted)		$	(0.80	)		$	0.13			$	(0.67	)
Dividend per Common Share		$	0.15			$	-			$	0.15

 

  

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 2:

RESTATEMENT OF CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

 

		As Previously
Cash Flow		Reported				Adjustment				As Restated
Cash Flows from Operating Activities:
Net Loss		$	(413,804	)		$	66,161			$	(347,643	)
Adjustments to Reconcile Net Loss to Net
Cash Used in Operating Activities:
Depreciation and Amortization			105,749				-				105,749
Decrease (Increase) in:
Accounts Receivable			1,135,493				(428,147	)			707,346
Inventories			(2,022,296	)			321,366				(1,700,930	)
Prepaid Expenses and Other Current Assets			107,980				-				107,980
Income Tax Receivable			(149,194	)			23,854				(125,340	)
Other Assets			(61,134	)			-				(61,134	)
Increase (Decrease) in:
Accounts Payable			(69,360	)			-				(69,360	)
Accrued Liabilities			(214,457	)			16,766				(197,691	)
Net Cash Used in Operating Activities			(1,581,023	)			-				(1,581,023	)
Cash Flows from Investing Activities:
Purchase of Property, Plant and Equipment			(65,692	)			-				(65,692	)
Net Cash Used in Investing Activities			(65,692	)			-				(65,692	)
Cash Flows from Financing Activities:
Proceeds from Short-Term Debt			382,330				-				382,330
Payments on Short-Term Debt			(131,148	)			-				(131,148	)
Net Cash Provided by
Financing Activities			251,182				-				251,182
Net Decrease in Cash			(1,395,533	)			-				(1,395,533	)
Cash, at Beginning of Period			8,668,012				-				8,668,012
Cash, at End of Period		$	7,272,479			$	-			$	7,272,479
Supplemental Cash Flow Information:
Noncash financing activity:
Dividends Declared		$	77,940			$	-			$	77,940

 

  

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 3

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.

 

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.

 

NOTE 4

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.

 

NOTE 5

REVENUE

 

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.

 

  

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 5

REVENUE (CONTINUED)

 

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.

 

NOTE 6

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,
		2018				2017
		(Restated)
Net Sales in Each Segment
Fruit:
Sales to Unaffiliated Customers		$	592,618			$	932,519
Molded Plastics:
Sales to Unaffiliated Customers			1,533,660				1,516,081
Net Sales		$	2,126,278			$	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.

 

  

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 6

BUSINESS SEGMENT DATA (CONTINUED)

 

		March 31,				March 31,
		2018				2017
		(Restated)
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			8,944,371				9,144,166
Total Assets		$	25,172,716			$	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.

 

  

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 77% 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.

 

  

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 $592,618 compared to net sales of $932,519 for the similar reporting period of 2017 representing a decrease of $339,901. The primary reason for this decrease relates to less sales of finished strawberry product 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. With 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, no trend or forecast can be annual fruit segment sales can be projected based on this information.

 

Paradise Plastics, Inc., a wholly owned company of Paradise, Inc., which accounted for 23% 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 6.8% 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. It is important to note that since annual fruit production is not scheduled to commence until June 1, 2018, management allocates a percentage of operating expenses back into inventory based on a percentage of completion calculation. As of March 31, 2018, as no production cost has begun, 100% of fruit segment operating expenses totaling $1,187,446 have been allocated to inventory compared to 100% of fruit segment operating expenses totaling $1,046,598 as of March 31, 2017.

 

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.

 

 

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)

 

Inventory levels as of March 31, 2018 increased $1,145,331 or 11.4% to $11,229,575 from $10,084,244 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.

 

Summary

 

Paradise, Inc.’s consolidated net sales for the three months ended March 31, 2018 decreased $322,322 to $2,126,278 from $2,448,600 for the similar reporting period of 2017, representing a decrease of 13.2%. This decrease is primarily related to the decline in strawberry tolling fees caused by 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 6.8% 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 11.4% 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 $125,340 and $259,036, respectfully, resulted in a consolidated first quarter 2018 loss of $347,643 compared to a first quarter 2017 loss of $409,036.

 

 

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 (Continued)

 

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.

 

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.

 

 

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

 

(a)

Evaluation of Disclosure Controls and Procedures.

 

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s President and Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report.

 

Subsequent to the initial filing of the Company’s annual report on Form 10-K for the year ended December 31, 2017, management identified a material weakness in internal control relevant to the Company’s timeliness of the issuance and related year end accrual of credit memos for the customer returns, allowances, discounts and incentives that related to 2017 sale. This material weakness in internal control resulted in a material misstatement of the financial statements and required restatement of the financial statements included in the Company’s Form 10-K for the year ended December 31, 2017 and in the Company’s Form 10-Q for the quarterly period ended March 31, 2018. These misstatements, which were not detected timely by management, were the result of inadequate design of controls pertaining to the Company’s review and ongoing monitoring of its procedures. The deficiency represents a material weakness in the Company’s internal control over financial reporting. 

 

As of June 30, 2018 and based upon that evaluation, including the fact that the Company has had to file restatements of its consolidated financial statements, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Management is actively engaged in the planning for and implementation of remediation efforts to address the material weakness identified above.

 

(b)

Changes in Internal Control over Financial Reporting.

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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:	August 20, 2018
Randy S. Gordon
President and Chief Executive Officer
/s/ Jack M. Laskowitz	Date:	August 20, 2018
Jack M. Laskowitz
Chief Financial Officer and Treasurer