U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

x

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

 

For the quarterly period ended September 30, 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 every Interactive Data File required to be submitted 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 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	x	Smaller reporting company	x
Emerging growth company	¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

 

The number of shares outstanding of each of the issuer’s classes of common stock as of November 14, 2018 was 519,600 shares.

 

 

  

PARADISE, INC.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

INDEX

 

		PAGE
PART I.	FINANCIAL INFORMATION
	ITEM 1.
	CONSOLIDATED BALANCE SHEETS:
	Assets
	As of September 30, 2018 (Unaudited), December 31, 2017 and September 30, 2017 (Unaudited)	2
	Liabilities and Stockholders’ Equity
	As of September 30, 2018 (Unaudited), December 31, 2017 and September 30, 2017 (Unaudited)	3
	CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED):
	For the three-months ended September 30, 2018 and 2017	4
	For the nine-months ended September 30, 2018 and 2017	5
	CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED):
	For the nine-months ended September 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	16
PART II.	OTHER INFORMATION
	ITEMS 1 – 6.	17
SIGNATURES		18

 

 

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		AS OF								AS OF
		SEPTEMBER 30,				AS OF				SEPTEMBER 30,
		2018				DECEMBER 31,				2017
		(UNAUDITED)				2017				(UNAUDITED)
		( Restated )
ASSETS
CURRENT ASSETS:
Cash		$	426,006			$	8,668,012			$	1,085,701
Accounts Receivable,
Less, Allowances of $0 (09/30/18), $1,566,578 (12/31/17) and $0 (09/30/17)			6,300,115				1,870,649				5,409,122
Inventories:
Raw Materials			8,129,091				5,855,658				7,669,182
Work in Process			459,538				1,077,718				394,889
Supplies			194,346				194,346				165,413
Finished Goods			3,653,227				2,400,924				4,087,294
Income Tax Receivable			523,991				209,616				655,304
Prepaid Expenses and Other Current Assets			401,420				224,384				351,500
Total Current Assets			20,087,734				20,501,307				19,818,405
Property, Plant and Equipment,
Less, Accumulated Depreciation of $19,356,833 (09/30/18), $19,045,405 (12/31/17) and $18,958,502 (09/30/17)			4,239,384				4,271,727				4,342,539
Goodwill			413,280				413,280				413,280
Other Assets			342,944				345,415				375,718
TOTAL ASSETS		$	25,083,342			$	25,531,729			$	24,949,942

 

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

  

		AS OF								AS OF
		SEPTEMBER 30,				AS OF				SEPTEMBER 30,
		2018				DECEMBER 31,				2017
		(UNAUDITED)				2017				(UNAUDITED)
		( Restated )
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short Term Debt		$	151,980			$	541,572			$	428,346
Accounts Payable			977,542				638,896				1,182,998
Accrued Liabilities			925,366				828,914				536,887
Total Current Liabilities			2,054,888				2,009,382				2,148,231
DEFERRED INCOME TAX LIABILITY			83,687				83,687				126,482
Total Liabilities			2,138,575				2,093,069				2,274,713
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			21,754,265				22,248,158				21,484,727
Treasury Stock, at Cost, 63,494 Shares			(273,219	)			(273,219	)			(273,219	)
Total Stockholders’ Equity			22,944,767				23,438,660				22,675,229
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	25,083,342			$	25,531,729			$	24,949,942

 

 

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		FOR THE THREE MONTHS ENDED
		SEPTEMBER 30,
		2018				2017
Net Sales		$	8,673,560			$	7,644,130
Costs and Expenses:
Cost of Goods Sold			6,939,942				6,225,065
Selling, General and Administrative Expense			1,053,228				1,007,875
Amortization Expense			3,000				3,000
Total Costs and Expenses			7,996,170				7,235,940
Income from Operations			677,390				408,190
Other Expenses			(19,856	)			(2,037	)
Income from Operations Before Income Taxes			657,534				406,153
Provision for Income Taxes			174,140				164,398
Net Income		$	483,394			$	241,755
Income per Common Share (Basic and Diluted)		$	0.93			$	0.47
Dividend per Common Share		$	0.00			$	0.00

  

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

 

 

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		FOR THE NINE MONTHS ENDED
		SEPTEMBER 30,
		2018				2017
Net Sales		$	12,322,935			$	11,444,179
Costs and Expenses:
Cost of Goods Sold			10,271,278				9,749,021
Selling, General and Administrative Expense			2,610,085				2,484,532
Amortization Expense			12,000				3,000
Total Costs and Expenses			12,893,363				12,236,553
Loss from Operations			(570,428	)			(792,374	)
Other Income			4,357				44,678
Loss from Operations Before Income Taxes			(566,071	)			(747,696	)
Benefit for Income Taxes			150,115				299,078
Net Loss		$	(415,956	)		$	(448,618	)
Loss per Common Share (Basic and Diluted)		$	(0.80	)		$	(0.86	)
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 NINE MONTHS ENDED
		SEPTEMBER 30,
		2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss		$	(415,956	)		$	(448,618	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization			323,428				310,785
(Increase) Decrease in:
Accounts Receivable			(4,429,466	)			(3,300,514	)
Inventories			(2,907,556	)			(4,011,745	)
Prepaid Expenses			(177,036	)			(54,649	)
Other Assets			2,471				15,276
Income Tax Asset			(314,375	)			(655,304	)
Increase (Decrease) in:
Accounts Payable			338,649				374,302
Accrued Liabilities			96,452				(152,290	)
Net Cash Used in Operating Activities			(7,483,389	)			(7,922,757	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment			(334,085	)			(487,688	)
Proceeds from Sale of Property and Equipment			55,000				-
Net Cash Used in Investing Activities			(279,085	)			(487,688	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Short Term Debt			(965,902	)			(680,763	)
Proceeds from Short Term Debt			564,310				1,066,171
Dividends Paid			(77,940	)			(129,900	)
Net Cash (Used in) Provided by Financing Activities			(479,532	)			255,508
NET DECREASE IN CASH			(8,242,006	)			(8,154,937	)
CASH, AT BEGINNING OF PERIOD			8,668,012				9,240,638
CASH, AT END OF PERIOD		$	426,006			$	1,085,701
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Income Tax		$	164,260			$	357,510

 

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. and subsidiaries (collectively, 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 nine months ended September 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 three and nine months ended September 30, 2017 to conform to the classifications used for the three and nine months ended September 30, 2018.

 

NOTE 2

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

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

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
		September 30,				September 30,
		2018				2017
Net Sales in Each Segment
Fruit:
Sales to Unaffiliated Customers		$	7,412,734			$	6,605,247
Molded Plastics:
Sales to Unaffiliated Customers			1,260,826				1,038,883
Net Sales		$	8,673,560			$	7,644,130

 

		Nine months ended				Nine months ended
		September 30,				September 30,
		2018				2017
Net Sales in Each Segment
Fruit:
Sales to Unaffiliated Customers		$	8,232,025			$	7,881,622
Molded Plastics:
Sales to Unaffiliated Customers			4,090,910				3,562,557
Net Sales		$	12,322,935			$	11,444,179

 

  

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.

 

		September 30,				September 30,
		2018				2017
Identifiable Assets of Each Segment are Listed Below:
Fruit		$	18,350,947			$	17,733,521
Molded Plastics			4,208,436				4,020,398
Identifiable Assets			22,559,383				21,753,919
General Corporate Assets			2,523,959				3,196,023
Total Assets		$	25,083,342			$	24,949,942

 

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 about our exploration of strategic alternatives, 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. Except as required by applicable law, we do not undertake to update any forward-looking statements.

 

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 ordinarily recorded for a period of eight to ten weeks beginning in mid September.

 

Since the majority of the Company’s customers require delivery of glace’ candied fruit products during this relatively short period of time, Paradise, Inc. must operate at consistent levels of production from as early as January through the middle of November of each year in order to meet peak demands. Furthermore, the Company must make substantial borrowings of short-term working capital to cover the cost of raw materials, factory overhead and labor expense associated with production for inventory. This combination of building and financing inventories during the year, without the opportunity to record any significant fruit product income, results in the generation of operating losses well into the third quarter of each year. Therefore, it is the opinion of management that meaningful forecasts of annual net sales or profit levels require analysis of a full year’s operations.

 

In addition, comparison of current quarterly results to the preceding quarter produces an incomplete picture on the Company’s performance due to year-to-year changes in production schedules, seasonal harvests and availability of raw materials, and in the timing of customer orders and shipments. Thus, the discussion of information presented within this report is focused on the review of the Company’s current year-to-date results as compared to the similar period last year.

 

Paradise, Inc.’s other business segment, Paradise Plastics, Inc., a wholly owned subsidiary of Paradise, Inc. producing custom molding products, is not subject to the seasonality of the glace’ fruit business. This segment represents all injection molding and thermoforming operations, including the packaging for the Company’s fruit products. Only sales to unaffiliated customers are reported.

 

 

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

PART I.

FINANCIAL INFORMATION

 

Item 2.

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

 

The First Nine Months

 

Paradise, Inc.’s fruit segment net sales for the first nine months of 2018 increased 4.4% to $8,232,025 from $7,881,622 for the similar nine month reporting period of 2017. This increase is directly related to timing differences in the receipt of customer purchase orders and the corresponding shipment of these orders. Changes in dates of opening orders from customers across interim reporting periods have a direct impact on net sales comparisons. Net revenue during the 10 day period beginning with the fifth-to-last day of the 3^rd quarter and ending on the fifth day of the 4^th quarter may fluctuate as much as $1,500,000. Therefore, management has consistently disclosed that interim filings are not reliable financial indicators of forecasting year-end performance. Only after the completion of a full year’s selling season will the Company be able to report if its sales and marketing efforts within the fruit segment were successful.

 

Paradise Plastics, Inc. (Paradise Plastics), 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 $4,090,910 for the nine months ended September 30, 2018 compared to $3,562,557 for the similar reporting period of 2017, representing an increase of 14.8%. 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 during 2017 due to a major plastics customer’s decision to transfer production to another supplier that could produce thermoformed parts in a more cost effective manner 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 from this major customer, along with recent successes in developing new accounts over the past nine months of 2018, management expects the fourth quarter of 2018 will continue this positive growth trend.

 

Consolidated cost of sales as a percentage of net sales improved approximately 2.0% for the nine months ending September 30, 2018 compared to the similar reporting period of 2017 as an increase in plastics sales of $528,353 during the first nine months of 2018 outpaced a limited increase in related plant payroll during the same period of 2018. However, as fruit segment production, representing more than 70% of consolidated cost of sales on an annual basis, continues well into the fourth quarter of the year, no meaningful forecast of this improvement in cost of sales will be determined until a full year’s accounting of plant operations is completed.

 

Selling, general & administrative expenses as a percentage of net sales remained consistent for the nine months ending September 30, 2018 compared to the similar reporting period of 2017 as increases in selling expenses attributable to the increase in net revenue offset continued cost saving improvements in outsourcing Paradise, Inc.’s payroll and related employee benefit program to a company that specializes in this field.

 

 

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

 

Other Income for the first nine months of 2018 was $4,357 compared to $44,678 for the similar reporting period of 2017. This decrease is primarily related to the changes in cash surrender value of two insurance policies owned by the Company on behalf of two senior executives who have been employed by the Company for over fifty years. Paradise, Inc. is the beneficiary as it relates solely to the premiums paid on behalf of these two policies. The remainder of the proceeds from these two policies are beneficiaries chosen by the two executives.

 

Inventory on hand increased $119,424 to $12,436,202 as of September 30, 2018 from $12,316,778 as of September 30, 2017. During the year, timing differences in levels of inventory may fluctuate due to the following two factors. First, changes in harvest and or market conditions of raw fruit commodities received from as far away as Southeast Asia may affect different quarterly periods from year to year, secondly, timing differences in levels of inventory will occur as shipments of fruit products to retail customers will also affect different quarterly periods from year to year. For the period in review, an increase of both fruit and plastics raw materials received during the first nine months of 2018 compared to the similar period of 2017 was offset by earlier shipments of finished fruit products to customers along in the 2017 period with increased shipment of finished plastics parts required to meet the increase in plastics sales activity experienced during the first nine months of 2018.

 

Short-Term Debt, Accounts Payable and Accrued Liabilities had an overall decrease of $93,343 to $2,054,888 from $2,148,231 as increases in accrued incentives to the Company’s fruit customers were more than offset by earlier payments to the Company’s suppliers of in-brine fruit materials as of September 30, 2018 compared to September 30, 2017. Fruit suppliers have payment terms ranging from 30 up to 180 days, liabilities reported as of any interim reporting date are subject to variations based upon the timing of receipt by Paradise, Inc.

 

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

 

 

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

PART I.

FINANCIAL INFORMATION

 

Item 2.

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

 

Other Significant Items (Continued)

 

Paradise, Inc. finances ongoing operations primarily with cash flows provided by operating activities (which is seasonal in nature), our existing cash, and a line of credit facility. At September 30, 2018 and December 31, 2017, the Company had $426,006 and $8,668,012, respectively, in cash. Additionally, we have a revolving line of credit with a maximum limit of $12 million and a borrowing limit of 80% of the Company’s eligible receivables plus the lesser of (i) $6,000,000 and (ii) 50% of the Company’s eligible inventory from January 1 to May 31 and 60% from June 1 to December 1 of each year, of which $0 was outstanding at September 30, 2018 and $0 at December 31, 2017. Within this agreement, there are letters of credit with a limit of $1,750,000, of which $151,980 was outstanding at September 30, 2018 and $541,572 at December 31, 2017. The agreement is secured by all of the assets of the Company and requires that certain conditions are met for the Company to continue borrowing, including debt service coverage and debt to equity ratios and other financial covenants including an agreement not to encumber a mortgage on the property without bank approval. Interest is payable monthly at the bank’s LIBOR plus 1.75%. As of the date of this filing, the Company is in compliance with the above mentioned covenants. Cash in the bank decreased by $8,242,006 for the nine months ended September 30, 2018 compared to a net decrease in cash of $8,154,937 for the nine months ended September 30, 2017 as the Company needs approximately $900,000 per month to acquire inventory and finance operations during the first nine months of any year.

 

On February 13, 2018, Paradise, Inc. filed a Form 8-K disclosing that the Company will be exploring strategic alternatives. As of the date of this filing, this process is ongoing.

  

Summary

 

Paradise Inc.’s consolidated net sales increased to $12,322,935 for the first nine months of 2018 from $11,444,179 for the first nine months of 2017. This overall increase of approximately 8.0% is due to the earlier shipment of retail packed glace’ fruit products along with an increase in plastics sales of $528,353 during the first nine months of 2018 compared to the similar reporting period of 2017. Thus, the above increase in sales when allocated over a relatively stable level of cost of sales and selling, general and administrative expenses resulted in a loss from operations for the nine months ended September 30, 2018 of $570,428 compared to a loss from operations for the nine months ended September 30, 2017 of $792,374. However, as mentioned throughout this report and in all previous interim financial filings, due to the extreme seasonality of the Company’s sale of holiday fruitcake mixes during the period running from mid-September through November of each year, with sales in such period ordinarily representing approximately 80% of annual sales, only a full year’s accounting of all sales and corresponding cost will provide the necessary information to provide the user of this report a complete picture of Paradise, Inc. financial results.

 

 

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

PART I.

FINANCIAL INFORMATION

 

Item 2.

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

 

Critical Accounting Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make assessments, estimates and assumptions that affect the amounts reported in the consolidated financial statements. We evaluate the accounting policies and estimates used to prepare the consolidated financial statements on an ongoing basis. Critical accounting estimates are those that require management’s most difficult, complex, or subjective judgments and have the most potential to impact our financial position and operating results. For a detailed discussion of our critical accounting estimates, see our Annual Report on Form 10-K for the year ended December 31, 2017. There have been no material changes to our critical accounting estimates during the nine months ended September 30, 2018.

 

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 replaced most existing revenue recognition guidance in U.S. GAAP when it became 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.

 

Item 3.

Quantitative and Qualitative Disclosure about Market Risk – N/A

 

 

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

PART I.

FINANCIAL INFORMATION

 

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.

 

Disclosure controls and procedures mean controls and other procedures designed to ensure that information that the Company is required to disclose in the reports that it files with or submits to the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods required. Our controls and procedures include, without limitation, controls and procedures designed to ensure that all information required to be disclosed by us in the reports that we file with or submit to the Securities and Exchange Commission is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required 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.

 

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 September 30, 2018, Management has implemented and integrated additional procedures around the reporting and tracking of credit memos for returns, allowances, discounts and incentives to ensure that all amounts are properly recorded and remediate the material weakness identified above. As of September 30, 2018 and based upon its evaluation of the Company’s disclosure controls and procedures, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were 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.

   

(b)

Changes in Internal Control over Financial Reporting.

 

Except as noted above, 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.

  

  

 

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings – N/A
Item 1A.	Risk Factors – N/A
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds – N/A
Item 3.	Defaults Upon Senior Securities – N/A
Item 4.	Mine Safety Disclosures – N/A
Item 5.	Other Information – N/A
Item 6.	Exhibits

 

Exhibit
Number		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906  of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906  of the Sarbanes-Oxley Act of 2002
EX-101.INS		XBRL Instance Document
EX-101.SCH		XBRL Taxonomy Extension Schema
EX-101.CAL		XBRL Taxonomy Extension Calculation Linkbase
EX-101.DEF		XBRL Taxonomy Extension Definition Linkbase
EX-101.LAB		XBRL Taxonomy Extension Label Linkbase
EX-101.PRE		XBRL Taxonomy Extension Presentation Linkbase

 

 

PARADISE, INC.

COMMISSION FILE NO. 0-3026

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

PARADISE, INC.
A Florida Corporation
/s/ Randy S. Gordon		Date:	November 14, 2018
Randy S. Gordon
President and Chief Executive Officer
/s/ Jack M. Laskowitz		Date:	November 14, 2018
Jack M. Laskowitz
Chief Financial Officer and Treasurer