FORM 10-Q
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 March 31,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. Yesx No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive dataData File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405(§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.
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 PARADISE, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED INDEX PARADISE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS 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 information furnished herein reflects 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 Certain minor reclassifications have been made to the consolidated unaudited financial statements for the 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 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 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 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. 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 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 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 First Paradise, Inc.’s fruit segment net sales for the first Paradise Plastics, Inc. (Paradise Plastics), a wholly owned company of Paradise, Inc., which accounted for Consolidated cost of sales as a percentage of net sales Selling, general & administrative expenses as a percentage of Other Significant Items Other Income for the first nine months of Inventory 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 $792,374. However, 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 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 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 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. Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of Disclosure controls and procedures mean 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. 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. 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. Large accelerated filer ¨Accelerated filer ¨ Non-accelerated filer ¨Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company x xEmerging growth company¨¨ May 15,November 14, 2018 was 519,600 shares.MARCH 31,SEPTEMBER 30, 2018PARADISE, INC. COMMISSION FILE NO. 0-3026 PART I.FINANCIAL INFORMATIONItem 1. Financial Statements AS OF AS OF SEPTEMBER 30, AS OF SEPTEMBER 30, AS OF AS OF 2018 DECEMBER 31, 2017 MARCH 31, AS OF MARCH 31, (UNAUDITED) 2017 (UNAUDITED) 2018 DECEMBER 31, 2017 (UNAUDITED) 2017 (UNAUDITED) (Restated ) ASSETS CURRENT ASSETS: Cash $ 7,272,479 $ 8,668,012 $ 7,633,002 $ 426,006 $ 8,668,012 $ 1,085,701 Accounts Receivable, Less, Allowances of $0 (03/31/18), $1,138,431 (12/31/17) and $0 (03/31/17) 1,163,303 2,298,796 1,492,633 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 8,466,419 6,710,217 8,030,485 8,129,091 5,855,658 7,669,182 Work in Process 11,265 1,077,718 12,472 459,538 1,077,718 394,889 Supplies 194,346 194,346 165,446 194,346 194,346 165,413 Finished Goods 2,557,545 1,224,998 1,875,841 3,653,227 2,400,924 4,087,294 Income Tax Receivable 242,044 92,850 257,752 523,991 209,616 655,304 Prepaid Expenses and Other Current Assets 116,404 224,384 179,015 401,420 224,384 351,500 Total Current Assets 20,023,805 20,491,321 19,646,646 20,087,734 20,501,307 19,818,405 Property, Plant and Equipment, Less, Accumulated Depreciation of $19,146,653 (03/31/18), $19,045,405 (12/31/17) and $18,766,538 (03/31/17) 4,236,170 4,271,727 4,508,209 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 413,280 413,280 413,280 413,280 413,280 413,280 Other Assets 406,549 345,415 316,242 342,944 345,415 375,718 TOTAL ASSETS $ 25,079,804 $ 25,521,743 $ 24,884,377 $ 25,083,342 $ 25,531,729 $ 24,949,942 2 See Accompanying Notes to these Consolidated Financial Statements (Unaudited)3 FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED MARCH 31, SEPTEMBER 30, 2018 2017 2018 2017 Net Sales $ 2,036,263 $ 2,448,600 $ 8,673,560 $ 7,644,130 Costs and Expenses: Cost of Goods Sold 1,813,782 2,256,181 6,939,942 6,225,065 Selling, General and Administrative Expense 779,515 878,693 1,053,228 1,007,875 Amortization Expense 4,500 - 3,000 3,000 Total Costs and Expenses 2,597,797 3,134,874 7,996,170 7,235,940 Loss from Operations (561,534 ) (686,274 ) Income from Operations 677,390 408,190 Other (Expense) Income (1,464 ) 18,202 Other Expenses (19,856 ) (2,037 ) Loss Before Income Taxes (562,998 ) (668,072 ) Income from Operations Before Income Taxes 657,534 406,153 Income Tax Benefit 149,194 259,036 Provision for Income Taxes 174,140 164,398 Net Loss $ (413,804 ) $ (409,036 ) Net Income $ 483,394 $ 241,755 Loss per Common Share (Basic and Diluted) $ (0.80 ) $ (0.79 ) Income per Common Share (Basic and Diluted) $ 0.93 $ 0.47 Dividend per Common Share $ 0.15 $ 0.25 $ 0.00 $ 0.00 4 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 5 FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED MARCH 31, SEPTEMBER 30, 2018 2017 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (413,804 ) $ (409,036 ) $ (415,956 ) $ (448,618 ) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: Depreciation and Amortization 105,749 115,717 323,428 310,785 Decrease (Increase) in: (Increase) Decrease in: Accounts Receivable 1,135,493 615,975 (4,429,466 ) (3,300,514 ) Inventories (2,022,296 ) (1,779,211 ) (2,907,556 ) (4,011,745 ) Prepaid Expenses and Other Current Assets 107,980 117,836 Income Tax Receivable (149,194 ) (257,752 ) Prepaid Expenses (177,036 ) (54,649 ) Other Assets (61,134 ) 77,752 2,471 15,276 Income Tax Asset (314,375 ) (655,304 ) Increase (Decrease) in: Accounts Payable (69,360 ) 45,178 338,649 374,302 Accrued Liabilities (214,457 ) (367,520 ) 96,452 (152,290 ) Net Cash Used in Operating Activities (1,581,023 ) (1,841,061 ) (7,483,389 ) (7,922,757 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Property and Equipment (65,692 ) (380,290 ) (334,085 ) (487,688 ) Proceeds from Sale of Property and Equipment 55,000 - Net Cash Used in Investing Activities (65,692 ) (380,290 ) (279,085 ) (487,688 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on Short Term Debt (965,902 ) (680,763 ) Proceeds from Short Term Debt 382,330 656,653 564,310 1,066,171 Payments on Short Term Debt (131,148 ) (42,938 ) Dividends Paid (77,940 ) (129,900 ) Net Cash Provided by Financing Activities 251,182 613,715 Net Cash (Used in) Provided by Financing Activities (479,532 ) 255,508 NET DECREASE IN CASH (1,395,533 ) (1,607,636 ) (8,242,006 ) (8,154,937 ) CASH, AT BEGINNING OF PERIOD 8,668,012 9,240,638 8,668,012 9,240,638 CASH, AT END OF PERIOD $ 7,272,479 $ 7,633,002 $ 426,006 $ 1,085,701 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for: Income Tax $ - $ - $ 164,260 $ 357,510 Noncash financing activity: Dividends Declared $ 77,940 $ 129,900 Noncash investing activity: Property and Equipment included in Accounts Payable $ - $ 81,000 56 NOTE 1 BASIS OF PRESENTATION (theand 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.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.threenine months ended March 31,September 30, 2018 are not necessarily indicative of the results that may be expected for the current year.quarterthree and nine months ended March 31,September 30, 2017 to conform to the classifications used for the quarterthree and nine months ended March 31,September 30, 2018.NOTE 2 IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSwill replacereplaced most existing revenue recognition guidance in U.S. GAAP when it becomesbecame 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.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.67 NOTE 2 IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)NOTE 3 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.NOTE 4 REVENUE 78 NOTE 5 BUSINESS SEGMENT DATA Business Segment Operation Fruit Production of candied fruit, a basic fruitcake ingredient, sold to manufacturing bakers, institutional users, and retailers for use in home baking. Also, based on market conditions, the processing of frozen strawberry products, for sale to commercial and institutional users such as preservers, dairies, drink manufacturers, etc. Molded Plastics Production of plastics containers and other molded plastics for sale to various food processors and others. March 31, March 31, Three months ended Three months ended 2018 2017 September 30, September 30, 2018 2017 Net Sales in Each Segment Fruit: Sales to Unaffiliated Customers $ 502,603 $ 932,519 $ 7,412,734 $ 6,605,247 Molded Plastics: Sales to Unaffiliated Customers 1,533,660 1,516,081 1,260,826 1,038,883 Net Sales $ 2,036,263 $ 2,448,600 $ 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 9 NOTE 5 BUSINESS SEGMENT DATA (CONTINUED) 8PARADISE, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)(UNAUDITED)NOTE 5BUSINESS SEGMENT DATA (CONTINUED) March 31, March 31, September 30, September 30, 2018 2017 2018 2017 Identifiable Assets of Each Segment are Listed Below: Fruit $ 11,812,208 $ 11,474,015 $ 18,350,947 $ 17,733,521 Molded Plastics 4,416,137 4,266,196 4,208,436 4,020,398 Identifiable Assets 16,228,345 15,740,211 22,559,383 21,753,919 General Corporate Assets 8,851,459 9,144,166 2,523,959 3,196,023 Total Assets $ 25,079,804 $ 24,884,377 $ 25,083,342 $ 24,949,942 910 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 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 ordinarily recorded during anfor a period of eight to ten week periodweeks beginning in mid-September.mid September.1011 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) QuarterNine Monthsquarternine months of 2018 totaled $503,603 comparedincreased 4.4% to net sales of $932,519$8,232,025 from $7,881,622 for the similar nine month reporting period of 2017 representing2017. 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 decrease of $428,916. The first reason for this decrease relates to lessdirect impact on net sales of finished strawberry products produced and sold exclusively to a local distributor beginning in early March and running through mid-April of each year. As in previous years, Paradise, Inc., based on a negotiated price (i.e. tolling fee) will receive and process fresh strawberries through its production facilities on behalf of this distributor. With unfavorable market conditions and a shortage of available laborcomparisons. Net revenue during the first10 day period beginning with the fifth-to-last day of the 3rd quarter and ending on the fifth day of 2018, tolling feesthe 4th 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 this local distributor totaled $275,211 forreport if its sales and marketing efforts within the three months ended March 31, 2018 compared to $526,417 for the three months ended March 31, 2017. Strawberry tolling fees account for less than 5% of annual fruit segment net sales and were 54.8% of fruit segment sales during the first quarter of 2018 compared to 56.5% of first quarter 2017. The second factor that impacted the decline in fruit segment net sales related to an increase in retail returns received from customers during the first quarter of 2018. Management’s standard practice, as disclosed within its filings, is to provide for estimated product returns by applying an allowance against Accounts Receivable for the invoiced price of the return. In addition, a provision to recognize a related estimate of finished goods returns is added back to inventory. The increase in retail returns resulted in two actions; first, management 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.successful.22%23% of total net sales to unaffiliated customers for the previous year, generated net sales of $1,533,660$4,090,910 for the threenine months ended March 31,September 30, 2018 compared to $1,516,081$3,562,557 for the three months ended March 31, 2017.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 fromduring 2017 due to a major plastics customer’s decision to transfer production to another supplier that could produce thesethermoformed parts in a more cost effective methodmanner 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 two operating quarters,nine months of 2018, management is confident it has takenexpects the necessary actions to provide additional revenue for the remainderfourth quarter of 2018.2018 will continue this positive growth trend.decreased 3.0%improved approximately 2.0% for the first quarter ofnine months ending September 30, 2018 compared to the similar reporting period of 2017 as higher value retail returns received froman 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 customers representedproduction, 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 greaterfull year’s accounting of plant operations is completed.overall inventory as of March 31,net sales remained consistent for the nine months ending September 30, 2018 compared to March 31, 2017. However, no trend or forecast can be determined regarding costthe similar reporting period of sales for the remainder of 2018. Only after the Company completes processing raw fruit materials into finished drum inventory will the Company be able2017 as increases in selling expenses attributable to determine the increase or decrease in thenet revenue offset continued cost of sales. It is importantsaving improvements in outsourcing Paradise, Inc.’s payroll and related employee benefit program to notea company that since annual production is not scheduled to commence until June 1, 2018, management allocates a percentage of fruit segment production expenses back into inventory based on a percentage of completion calculation. As of March 31, 2018, $1,187,446 of operating expenses have been allocated to inventory compared to $1,046,598 as of March 31, 2017.specializes in this field.1112 PARADISE, INC. COMMISSION FILE NO. 0-3026 PART I. FINANCIAL INFORMATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) The First Quarter (Continued)Selling, general & administrative expenses for the first three months of 2018 decreased 11.3% to $779,515 from $878,693 for the first three months of 2017 as Paradise, Inc. continued to receive savings from management’s decision to outsource all payroll and employee benefit program administration to a national provider of these services during the first quarter of 2017.Accounts Receivable asMarch 31, 2018 totaled $1,163,303was $4,357 compared to $1,492,633 as$44,678 for the similar reporting period of March 31, 2017. This decrease of $329,330 is primarily related to the decreasechanges in tolling fees earned forcash surrender value of two insurance policies owned by the production of fresh strawberry products processedCompany on behalf of a local distributortwo 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 products.two policies. The remainder of the proceeds from these two policies are beneficiaries chosen by the two executives.levelson hand increased $119,424 to $12,436,202 as of March 31,September 30, 2018 increased $945,331 or 9.2% to $11,229,575 from $10,284,244$12,316,778 as of March 31,September 30, 2017. The primary reason for this wasDuring 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 in retail returns of approximately $500,000both fruit and plastics raw materials received 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 quarternine 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 quarternine months of 2017.2018.Short TermShort-Term Debt, Accounts Payable and Accrued Liabilities had an overall decrease of $93,343 to $2,054,888 from $2,148,231 as of March 31, 2018 increased $140,601increases in accrued incentives to $797,254 from $656,653 and primarily consist of letters of credit issued by the Company’s banking institution to Paradise, Inc.’s overseas supplier of certain raw fruit materials. The bank makes directcustomers were more than offset by earlier payments to the overseas supplier and then charges Paradise, Inc. after receiptCompany’s suppliers of this rawin-brine fruit materials with term extending out 180 days. As the terms in payments are consistent from period to period, the increase balance as of March 31,September 30, 2018 compared to the balanceSeptember 30, 2017. Fruit suppliers have payment terms ranging from 30 up to 180 days, liabilities reported as of March 31, 2017 is a functionany interim reporting date are subject to variations based upon the timing of timing as a greater percentage of product was received during the fourth quarter of 2017.receipt by Paradise, Inc.Accounts Payable as of March 31, 2018 decreased to $569,533 compared to $934,874 as of March 31, 2017 as several major suppliers of domestic fruit and plastics raw inventory were received in April of 2018 compared to March of 2017.We finance our ongoing operations primarily with cash provided by our operating activities. Our principal sources of liquidity are our cash flows provided by operating activities, our existing cash, andThe Company maintains a line of credit facility. At March 31, 2018 and December 31,facility with its primary lender. On July 28, 2017, we had $7.3 million and $8.7 million, respectively, in cash. The decrease in cash during the first quarter of 2018 of $1.4 million is consistent with prior years as we will continue to use available cash reserves until we start to receive payments from our fruit customers after the start of our shipping season beginning in the fourth quarter of the year. Additionally, we have aParadise, 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, of which $0 was outstanding at March 31, 2018 and December 31, 2017.year. Within this agreement there are letters of credit with a limit of $1,750,000,$1,750,000. The agreement is secured by all of which $797,254 was outstandingthe 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 March 31, 2018 and $541,572 at December 31, 2017. The linethe bank’s LIBOR plus 1.75%. As of credit agreement expires on July 31, 2019.the date of this filing, the Company is in compliance with the above mentioned covenants.1213 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) threefirst nine months ended March 31,of 2018 decreased $412,337from $11,444,179 for the first nine months of 2017. This overall increase of approximately 8.0% is due to $2,036,263 from $2,448,600 forthe 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, representing2017. Thus, the above increase in sales when allocated over a decreaserelatively stable level of 16.8%. This decrease is primarily related to the following two factors. First, retail returns from customers were slightly higher than estimated resulting in areduction of revenue of $146,926. Secondly, unfavorable market conditions and a shortage of available labor resulted in tolling fees of $275,211. Correspondingly, cost of sales as a percentage of sales decreased 3.0% as increased returns of higher valued retail glace’ fruit represented a greater percentage of ending inventory as of March 31, 2018 compared to March 31, 2017. Selling,and selling, general and administrative expenses decreased 11.3% as of March 31, 2018 compared to March 31, 2017 as savings continued to be achieved from outsourcing payroll and employee benefits to a national provider of these services during the first quarter of 2017. Thus, the combination of these events, after applying income tax benefits at March 31, 2018 and March 31, 2017 of $149,194 and $259,036 resulted in a consolidated first quarterloss from operations for the nine months ended September 30, 2018 loss of $(413,804)$570,428 compared to a first quarterloss from operations for the nine months ended September 30, 2017 loss of $(409,036).it’s importantas mentioned throughout this report and in all previous interim financial filings, due to note that with less than 10% of anticipated 2018 fruit segment net sales processed and shipped as of March 31, 2018 and based onhistorical sales data which indicates that more than 80%the extreme seasonality of the Company’s annual fruit segment’s sales will occursale of holiday fruitcake mixes during the months of Septemberperiod running from mid-September through November of each year, no realistic forecast or trend aswith 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 year end results can be developed as ofprovide the dateuser of this filing.report a complete picture of Paradise, Inc. financial results.14 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) threenine months ended March 31,September 30, 2018.Impact of Recently Issued Accounting Pronouncementswill replacereplaced most existing revenue recognition guidance in U.S. GAAP when it becomesbecame 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.13PARADISE, INC.COMMISSION FILE NO. 0-3026PART I.FINANCIAL INFORMATIONItem 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)Impact of Recently Issued Accounting Pronouncements (Continued)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.Item 3. Quantitative and Qualitative Disclosure about Market Risk – N/A 1415 PARADISE, INC. COMMISSION FILE NO. 0-3026 PART I. FINANCIAL INFORMATION Item 3.Quantitative and Qualitative Disclosure and Market Risk – N/AItem 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures. AsMarch 31, 2018, ourthe 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 and they have concluded that we maintain effective disclosure controls and procedures. There were no changes in our internal control over financial reporting during(as defined under Rule 13a-15(e) under the quarter ended March 31, 2018.Exchange Act) as of the end of the period covered by this report.the methodscontrols 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 areinclude, 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.(b) Changes in Internal Control over Financial Reporting. 1516 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 Item 6.ExhibitsExhibit 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 1617 PARADISE, INC. COMMISSION FILE NO. 0-3026 PARADISE, INC. A Florida Corporation /s/ Randy S. Gordon Date: May 15,November 14, 2018Randy S. Gordon President and Chief Executive Officer /s/ Jack M. Laskowitz Date: May 15,November 14, 2018Jack M. Laskowitz Chief Financial Officer and Treasurer 1718