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 June 30, 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.

 

 

 

PARADISE, INC.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018

INDEX

 

		PAGE
PART I.	FINANCIAL INFORMATION
	ITEM 1.
	CONSOLIDATED BALANCE SHEETS:
	Assets
	As of June 30, 2018 (Unaudited), December 31, 2017 and June 30, 2017 (Unaudited)	2
	Liabilities and Stockholders’ Equity
	As of June 30, 2018 (Unaudited), December 31, 2017 and June 30, 2017 (Unaudited)	3
	CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED):
	For the three-month periods ended June 30, 2018 and 2017	4
	For the six-month periods ended June 30, 2018 and 2017	5
	CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED):
	For the six-month periods ended June 30, 2018 and 2017	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 – 15
	ITEM 3.
	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK – N/A	15
	ITEM 4.
	CONTROLS AND PROCEDURES	15 - 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
		JUNE 30,				AS OF				JUNE 30,
		2018				DECEMBER 31,				2017
		(UNAUDITED)				2017				(UNAUDITED)
						(Restated )
ASSETS
CURRENT ASSETS:
Cash		$	2,569,673			$	8,668,012			$	3,839,389
Accounts Receivable, Less, Allowances of $0 (06/30/18), $1,566,578 (12/31/17) and $0 (06/30/17)			857,674				1,870,649				613,130
Inventories:
Raw Materials			10,450,641				5,855,658				9,097,142
Work in Process			377,973				1,077,718				414,639
Supplies			194,346				194,346				165,413
Finished Goods			3,935,679				2,400,924				4,201,945
Income Tax Receivable			698,131				209,616				652,192
Prepaid Expenses and Other Current Assets			455,555				224,384				431,890
Total Current Assets			19,539,672				20,501,307				19,415,740
Property, Plant and Equipment, Less, Accumulated Depreciation of $19,251,118 (06/30/18), $19,045,405 (12/31/17) and $18,857,109 (06/30/17)			4,400,099				4,271,727				4,433,640
Goodwill			413,280				413,280				413,280
Other Assets			369,300				345,415				339,726
TOTAL ASSETS		$	24,722,351			$	25,531,729			$	24,602,386

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

 

		AS OF								AS OF
		JUNE 30,				AS OF				JUNE 30,
		2018				DECEMBER 31,				2017
		(UNAUDITED)				2017				(UNAUDITED)
						(Restated)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short Term Debt		$	543,310			$	541,572			$	1,052,779
Accounts Payable			1,379,817				638,896				872,862
Accrued Liabilities			254,164				828,914				116,789
Total Current Liabilities			2,177,291				2,009,382				2,042,430
DEFERRED INCOME TAX LIABILITY			83,687				83,687				126,482
Total Liabilities			2,260,978				2,093,069				2,168,912
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			21,270,871				22,248,158				21,242,972
Treasury Stock, at Cost, 63,494 Shares			(273,219	)			(273,219	)			(273,219	)
Total Stockholders’ Equity			22,461,373				23,438,660				22,433,474
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	24,722,351			$	25,531,729			$	24,602,386

 

 

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		FOR THE THREE MONTHS ENDED
		JUNE 30,
		2018				2017
Net Sales		$	1,523,097			$	1,351,449
Costs and Expenses:
Cost of Goods Sold			1,517,554				1,267,775
Selling, General and Administrative Expense			777,342				597,964
Amortization Expense			4,500				-
Total Costs and Expenses			2,299,396				1,865,739
Loss from Operations			(776,299	)			(514,290	)
Other Income			25,677				28,513
Loss Before Income Taxes			(750,622	)			(485,777	)
Income Tax Benefit			198,915				204,440
Net Loss		$	(551,707	)		$	(281,337	)
Loss per Common Share (Basic and Diluted)		$	(1.06	)		$	(0.54	)
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 SIX MONTHS ENDED
		JUNE 30,
		2018				2017
Net Sales		$	3,649,375			$	3,800,049
Costs and Expenses:
Cost of Goods Sold			3,331,336				3,523,956
Selling, General and Administrative Expense			1,556,857				1,476,657
Amortization Expense			9,000				-
Total Costs and Expenses			4,897,193				5,000,613
Loss from Operations			(1,247,818	)			(1,200,564	)
Other Income			24,213				46,715
Loss Before Income Taxes			(1,223,605	)			(1,153,849	)
Income Tax Benefit			324,255				463,476
Net Loss		$	(899,350	)		$	(690,373	)
Loss per Common Share (Basic and Diluted)		$	(1.73	)		$	(1.33	)
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 SIX MONTHS ENDED
		JUNE 30,
		2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss		$	(899,350	)		$	(690,373	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization			214,714				206,392
Decrease (Increase) in:
Accounts Receivable			1,012,975				1,495,478
Inventories			(5,429,993	)			(5,574,106	)
Prepaid Expenses and Other Current Assets			(231,171	)			(135,039	)
Income Tax Receivable			(488,515	)			(652,192	)
Other Assets			(23,885	)			54,268
Increase (Decrease) in:
Accounts Payable			740,924				64,166
Accrued Liabilities			(574,750	)			(572,388	)
Net Cash Used in Operating Activities			(5,679,051	)			(5,803,794	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment			(334,086	)			(477,396	)
Net Cash Used in Investing Activities			(334,086	)			(477,396	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Short Term Debt			(571,572	)			1,052,779
Payments on Short Term Debt			564,310				(42,938	)
Dividends Paid			(77,940	)			(129,900	)
Net Cash (Used in) Provided by Financing Activities			(85,202	)			879,941
NET DECREASE IN CASH			(6,098,339	)			(5,401,249	)
CASH, AT BEGINNING OF PERIOD			8,668,012				9,240,638
CASH, AT END OF PERIOD		$	2,569,673			$	3,839,389
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Income Tax		$	164,260			$	190,000

 

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 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, 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 six months ended June 30, 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 June 30, 2017 to conform to the classifications used for the quarter ended June 30, 2018.

 

NOTE 2

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The 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.

 

 

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 2

IMPACT 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 3

LOSS PER COMMON SHARE

 

Basic and diluted loss per common share is based on the weighted average number of shares outstanding and assumed to be outstanding of 519,600. There are no dilutive securities outstanding.

 

NOTE 4

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.

 

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.

 

 

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 5

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
		June 30,				June 30,
		2018				2017
Net Sales in Each Segment
Fruit:
Sales to Unaffiliated Customers		$	226,673			$	343,856
Molded Plastics:
Sales to Unaffiliated Customers			1,296,424				1,007,593
Net Sales		$	1,523,097			$	1,351,449
		Six months ended				Six months ended
		June 30,				June 30,
		2018				2017
Net Sales in Each Segment
Fruit:
Sales to Unaffiliated Customers		$	819,291			$	1,276,375
Molded Plastics:
Sales to Unaffiliated Customers			2,830,084				2,523,674
Net Sales		$	3,649,375			$	3,800,049

 

 

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 5

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.

 

		June 30,				June 30,
		2018				2017
Identifiable Assets of Each Segment  are Listed Below:
Fruit		$	15,207,924			$	14,445,847
Molded Plastics			4,588,675				4,125,240
Identifiable Assets			19,796,599				18,571,087
General Corporate Assets			4,925,752				6,031,299
Total Assets		$	24,722,351			$	24,602,386

 

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 Second Quarter

 

Paradise, Inc.’s fruit segment net sales for the first six months of 2018 totaled $819,291 compared to net sales of $1,276,375 for the similar reporting period of 2017 representing a decrease of $457,084. The primary reason for this decrease relates to less revenue earned from the sale 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 six months of 2018, tolling fees invoiced to this local distributor totaled $332,210 for the six months ended June 30, 2018 compared to $646,933 for the six months ended June 30, 2017, representing a decrease in net sales of $314,723. Strawberry tolling fees historically account for less than 5% of annual fruit segment net sales and the current decrease in 2018 tolling fees will have little impact on annual fruit segment net sales for 2018.

 

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 $2,830,084 for the six months ended June 30, 2018 compared to $2,523,674 for the six months ended June 30, 2017. Plastics net sales which are not seasonal in nature 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 thermoformed 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 other custom molding products produced for this major customer, along with recent successes in developing new accounts over the past six months of 2018, management is confident that the net sales during the second half of 2018 will continue to generate additional growth.

 

Consolidated cost of sales as a percentage of net sales remained fairly consistent for the first six months of 2018 compared to the similar reporting period of 2017. However, with less than 30% of the Company’s annual production of its estimated fruit requirements completed as of June 30, 2018, it is too early to forecast the change in annual cost of sales as a percentage of sales for the remainder of the year. It is important to note, with production beginning in June of each year, the Company adds back to inventory a percentage of production expenses incurred during the first six months of the year. The amount of production expenses transferred into inventory as of June 30, 2018 was $1,196,715 compared to $1,207,417 as of June 30, 2017.

 

Selling, general & administrative expenses for the first six months of 2018 increased 5.4% to $1,556,857 from $1,476,657 for the similar reporting period of 2017 as the Company increased its business travel throughout the Country to visit existing customers as well as make presentations to new customers during the first six months of 2018.

 

 

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

 

Accounts Receivable as of June 30, 2018 totaled $857,674 compared to $613,130 as of June 30, 2017. This increase of $244,544 is directly related to the increase in plastics sales reported during the first six months of 2018 compared to the similar reporting period of 2017.

 

Inventory levels as of June 30, 2018 increased $1,079,500 or 7.8% to $14,958,639 from $13,879,139 as of June 30, 2017. This increase is based on the following two factors: First, plastics inventory increased $468,000 as of June 30, 2018 compared to June 30, 2017 as additional raw materials have been ordered and received to keep place with the increase in demand during 2018. Secondly, mainly due to crop availability, the Company has received approximately $560,000 more of raw fruit commodities during the first six months of 2018 compared to the first six months of 2017.

 

Short term debt as of June 30, 2018 decreased $509,469 to $543,310 from $1,052,779 as of June 30, 2017. Short term debt 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 to 180 days. As the level of overseas purchasing of brine fruit commodities for 2018 consistent with the previous year’s purchasing, the decrease in the balance owed as of June 30, 2018 compared to the balance owed as of June 30, 2017 is a function of timing as a greater percentage of product was received early in the first half of 2018 compared to the first half of 2017.

 

Accounts Payable as of June 30, 2018 increased $506,955 to $1,379,817 from $892,862 primarily due to the timing of receipt of domestic fruit and plastics raw materials during the first half of 2018 compared to 2017. As payment terms are net 30, all amounts outstanding as of June 30, 2018 have been paid as of the date of this filing.

 

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 June 30, 2018 and December 31, 2017, we had approximately $2.6 million and $8.7 million, respectively, in cash. The decrease in cash during the first six months of 2018 of $6.1 million is consistent with the prior year as we will continue to use available cash reserves in excess of $1 million per month 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 June 30, 2018 and December 31, 2017. Within this agreement, there are letters of credit with a limit of $1,750,000, of which $543,310 was outstanding at June 30, 2018 and $541,572 at December 31, 2017. The line of credit agreement expires on July 31, 2019.

 

On February 13, 2018, Paradise, Inc. issued a press release announcing that it is exploring its strategic alternatives. As of the date of this filing, this process is on-going.

 

 

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 six months ended June 30, 2018 decreased $150,674 to $3,649,375 from $3,800,049 for the similar reporting period of 2017, representing a decrease of 3.9%. The increase in plastics segment sales of $306,410 offset the decline Strawberry tolling fees of $316,723. Cost of sales as a percentage of sales remained fairly consistent for the six months ending June 30, 2018 compared to June 30, 2017 with just a 1.4% increase. Selling, general and administrative expenses increased 5.4% as of June 30, 2018 compared to June 30, 2017 as management increased its travel to visit existing customers and make presentations to new customers throughout the country. The combination of these events, after applying income tax benefits at June 30, 2018 and June 30, 2017 of $324,255 and $463,476, respectively, resulted in a consolidated loss of $899,350 for the six months ending June 30, 2018 compared to a consolidated loss of $690,373 for the six months ending June 30, 2017.

 

However, it’s important to note that 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 six months ended June 30, 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.

 

 

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.

 

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. This 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.

 

 

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

PART I.

FINANCIAL INFORMATION

 

Item 4.

Controls and Procedures (Continued)

 

(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