FORM 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31,June 30, 2018

or

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. Yesx 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). Yesx 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¨ Nox

The number of shares outstanding of each of the issuer’s classes of common stock as of May 15,August 20, 2018 was 519,600 shares.

PARADISE, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31,JUNE 30, 2018

INDEX

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 theall 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 threesix months ended March 31,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 March 31,June 30, 2017 to conform to the classifications used for the quarter ended March 31,June 30, 2018.

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 revenuestandard.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 fromleases.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)

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.

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

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)

The Company’s operations are conducted through two business segments. These segments, and the primary operations of each, are as follows:

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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)

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.

Forward–Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact should be considered “forward-looking statements” for the purpose of these provisions, including statements that include projections of, or expectations about, earnings, revenues or other financial items, statements about our plans and objectives for future operations, statements concerning proposed new products or services, statements regarding future economic conditions or performance, statements concerning our expectations regarding the attraction and retention of customers, statements about market risk and statements underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of such terminology as “may”, “will”, “expects”, “potential”, or “continue”, or the negative thereof or other similar words. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that such expectations or any of our forward-looking statements will prove to be correct. Actual results and developments are likely to be different from, and may be materially different from, those expressed or implied by our forward-looking statements. Forward-looking statements are subject to inherent risks and uncertainties.

Overview

Paradise, Inc.’s main business segment, glace’ fruit, a prime ingredient of fruitcakes and other holiday confections, represented 78%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.

The FirstSecond Quarter

Paradise, Inc.’s fruit segment net sales for the first quartersix months of 2018 totaled $503,603$819,291 compared to net sales of $932,519$1,276,375 for the similar reporting period of 2017 representing a decrease of $428,916.$457,084. The firstprimary reason for this decrease relates to less salesrevenue 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 quartersix months of 2018, tolling fees invoiced to this local distributor totaled $275,211$332,210 for the threesix months ended March 31,June 30, 2018 compared to $526,417$646,933 for the threesix months ended March 31, 2017.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 were 54.8% of fruit segment sales during the first quarter ofcurrent decrease in 2018 compared to 56.5% of first quarter 2017. The second factor that impacted the decline intolling fees will have little impact on annual fruit segment net sales related to an increase in retail returns received from customers during the first quarter offor 2018. Management’s standard practice, as disclosed within its filings, is to provide for estimated product returns by applying an allowance against Accounts Receivable for the invoiced price of the return. In addition, a provision to recognize a related estimate of finished goods returns is added back to inventory. The increase in retail returns resulted in two actions; first, management recordedadditional $146,926 reduction of revenue to recognize the increase in product returns. Secondly, management increased its estimate of the allowance for future retail returns by an additional 1.0% of total retail net sales.

Paradise Plastics, Inc., a wholly owned company of Paradise, Inc., which accounted for 22%23% of total net sales to unaffiliated customers for the previous year, generated net sales of $1,533,660$2,830,084 for the threesix months ended March 31,June 30, 2018 compared to $1,516,081$2,523,674 for the threesix months ended March 31,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 thesethermoformed 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 two operating quarters,six months of 2018, management is confident it has takenthat the necessary actionsnet sales during the second half of 2018 will continue to providegenerate additional revenue for the remainder of 2018.growth.

Consolidated cost of sales as a percentage of net sales decreased 3.0%remained fairly consistent for the first quartersix months of 2018 compared to the similar reporting period of 2017 as higher value retail returns received from2017. However, with less than 30% of the Company’s annual production of its estimated fruit segment customers represented a greater percentage of overall inventoryrequirements completed as of March 31,June 30, 2018, comparedit is too early to March 31, 2017. However, no trend or forecast can be determined regardingthe change in annual cost of sales as a percentage of sales for the remainder of 2018. Only after the Company completes processing raw fruit materials into finished drum inventory will the Company be able to determine the increase or decrease in the cost of sales.year. It is important to note, that since annualwith production is not scheduledbeginning in June of each year, the Company adds back to commence until June 1, 2018, management allocatesinventory a percentage of fruit segment production expenses backincurred during the first six months of the year. The amount of production expenses transferred into inventory based on a percentageas of completion calculation. As of March 31,June 30, 2018 $1,187,446 of operating expenses have been allocated to inventorywas $1,196,715 compared to $1,046,598$1,207,417 as of March 31,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.

The First Quarter (Continued)

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

Other Significant Items

Accounts Receivable as of March 31,June 30, 2018 totaled $1,163,303$857,674 compared to $1,492,633$613,130 as of March 31,June 30, 2017. This decreaseincrease of $329,330$244,544 is primarilydirectly related to the decreaseincrease in tolling fees earned forplastics sales reported during the productionfirst six months of fresh strawberry products processed on behalf2018 compared to the similar reporting period of a local distributor of these products.2017.

Inventory levels as of March 31,June 30, 2018 increased $945,331$1,079,500 or 9.2%7.8% to $11,229,575$14,958,639 from $10,284,244$13,879,139 as of March 31,June 30, 2017. The primary reason for this wasThis 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 an increase in retail returnscrop availability, the Company has received approximately $560,000 more of approximately $500,000raw fruit commodities 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 quartersix months of 2018 compared to the first quartersix months of 2017.

Short Term Debtterm debt as of March 31,June 30, 2018 increased $140,601decreased $509,469 to $797,254$543,310 from $656,653 and primarily$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 termslevel of overseas purchasing of brine fruit commodities for 2018 consistent with the previous year’s purchasing, the decrease in payments are consistent from period to period, the increase balance owed as of March 31,June 30, 2018 compared to the balance owed as of March 31,June 30, 2017 is a function of timing as a greater percentage of product was received duringearly in the fourth quarterfirst half of 2018 compared to the first half of 2017.

Accounts Payable as of March 31,June 30, 2018 decreasedincreased $506,955 to $569,533 compared$1,379,817 from $892,862 primarily due to $934,874 asthe timing of March 31, 2017 as several major suppliersreceipt of domestic fruit and plastics raw inventory were received in Aprilmaterials during the first half of 2018 compared to March2017. As payment terms are net 30, all amounts outstanding as of 2017.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 March 31,June 30, 2018 and December 31, 2017, we had $7.3approximately $2.6 million and $8.7 million, respectively, in cash. The decrease in cash during the first quartersix months of 2018 of $1.4$6.1 million is consistent with the prior yearsyear 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 March 31,June 30, 2018 and December 31, 2017. Within this agreement, there are letters of credit with a limit of $1,750,000, of which $797,254$543,310 was outstanding at March 31,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.

Summary

Paradise, Inc.’s consolidated net sales for the threesix months ended March 31,June 30, 2018 decreased $412,337$150,674 to $2,036,263$3,649,375 from $2,448,600$3,800,049 for the similar reporting period of 2017, representing a decrease of 16.8%3.9%. This decrease is primarily related toThe increase in plastics segment sales of $306,410 offset the following two factors. First, retail returns from customers were slightly higher than estimated resulting in areduction of revenue of $146,926. Secondly, unfavorable market conditions and a shortage of available labor resulted indecline Strawberry tolling fees of $275,211. Correspondingly, cost$316,723. Cost of sales as a percentage of sales decreased 3.0% as increased returns of higher valued retail glace’ fruit represented a greater percentage ofremained fairly consistent for the six months ending inventory as of March 31,June 30, 2018 compared to March 31, 2017.June 30, 2017 with just a 1.4% increase. Selling, general and administrative expenses decreased 11.3%increased 5.4% as of March 31,June 30, 2018 compared to March 31,June 30, 2017 as savings continuedmanagement increased its travel to be achieved from outsourcing payrollvisit existing customers and employee benefitsmake presentations to a national provider of these services duringnew customers throughout the first quarter of 2017. Thus, thecountry. The combination of these events, after applying income tax benefits at March 31,June 30, 2018 and March 31,June 30, 2017 of $149,194$324,255 and $259,036$463,476, respectively, resulted in a consolidated first quarter 2018 loss of $(413,804)$899,350 for the six months ending June 30, 2018 compared to a first quarter 2017consolidated loss of $(409,036).$690,373 for the six months ending June 30, 2017.

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 onhistoricalon 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 threesix months ended March 31,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.

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 fromleases.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.

As(a) Evaluation of March 31, 2018, ourDisclosure 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 have evaluated(“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 they haverelated 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 we maintain effectivethe Company’s disclosure controls and procedures. 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 theour most recently completed fiscal quarter ended March 31, 2018.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.

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.