FORM 10-Q/A

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AMENDED REPORT

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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For the quarterly period ended September 30, 2017March 31, 2018

or

Commission File No. 0-3026000-03026

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PARADISE, INC.

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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

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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 November 14, 2017August 20, 2018 was 519,600 shares.

Explanatory Note

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

Background and Effect of Restatement

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

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

Items Amended in this Filing

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

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

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

PARADISE, INC.

FORM 10-Q - A

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017MARCH 31, 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 OPERATIONSCASH FLOWS

(UNAUDITED)

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL 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 allonly the 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, 2016.2017. 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 ninethree months ended September 30, 2017March 31, 2018 are not necessarily indicative of the results that may be expected for the current year.

Certain minor reclassifications have been made to the consolidated unaudited financial statements for the three and nine monthsquarter ended September 30, 2016March 31, 2017 to conform to the classifications used for the three and nine monthsquarter ended September 30, 2017.

March 31, 2018.

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

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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 will be effective retrospectively for the Company on January 1, 2018 which is the effective date for public companies. The standard permits the use of either theon a full retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU No. 2014-09 will have on its financial statements and related disclosures. The Company is finalizing reviews and working on implementing the process, policy and disclosure changes that will go into effect January 1, 2018. At this time, the Company does not expect abasis. There was no material financial impact from adopting the new revenue standard.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03,Simplifying the Presentation of Debt Issuance Costs(“ASU2015-03”). The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this standards update. The Company evaluated this ASU and began early adoption beginning with the annual period ended December 31, 2016. The adoption of this ASU did not have a material impact on the Company’s financial position or results of operations.

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

In July 2015, the FASB issued ASU No. 2015-11,Simplifying the Measurement of Inventory, which amends FASB ASU Topic 330,Inventory. This ASU requires entities to measure inventory at the lower of cost or net realizable value and eliminates the option that currently exists for measuring inventory at market value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This ASU should be applied prospectively with earlier application permitted. The adoption of this ASU did not have a material impact on the Company’s financial position or results of operations.

In November 2015, the FASB issued ASU No. 2015-17,Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes,which simplifies the presentation of deferred income taxes. The ASU provides presentation requirements to classify deferred tax assets and liabilities as noncurrent in a classified balance sheet. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for any interim and annual financial statements that have not yet been issued. The new guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

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. For public companies, 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.

Basic and diluted incomeloss per common share isare 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.

PARADISE, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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.

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 68.7%77% of total net sales during 2016.2017. 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 for a period ofduring an eight to ten weeksweek period beginning in mid September.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 First Nine Months

Paradise, Inc.’s fruit segment net sales for the first nine months of 2017 decreased 8.9% to $7,881,622 from $8,643,663 for the similar nine month reporting period of 2016. This decrease is primarily related to timing differences in the receipt of customer’s purchase orders and the corresponding shipment of these orders. Changes in dates of opening orders from long-time customers between interim reporting periods will have a direct impact on net sales comparisons. Paradise, Inc. recognizes net sales generally upon receipt of its products by its customers. To illustrate this in financial terms, fruit segment shipments to customers during the first five business days of October, 2017 were $2,193,260 compared to $242,241 for the first five business days of October, 2016. Thus, extending the reporting period into the first week of October, 2017 and October, 2016 would have resulted in increased fruit segment net sales of 13.4% compared to the 8.9% decrease reported above. Management has consistently disclosed that interim filings are not reliable financial indicators of year-end performance. Only after a full year’s selling season which eliminates such timing differences related to dates of opening orders shipped, received and placed in stores by our customers, will the Company have the necessary sales data to determine if its sales and marketing efforts for the current year were successful.

Paradise Plastics, Inc., (Paradise Plastics) a wholly owned company of Paradise, Inc., which accounted for 31.3% of total net sales to unaffiliated customers for the previous year, generated net sales of $3,562,557 for the nine months ended September 30, 2017 compared to $5,306,706 for the similar reporting period of 2016. This represents a decrease of $1,744,149 or 32.9%. Paradise Plastics produces various types of custom molded parts for its customers which are then assembled into finished products by its customers for sale to the end user. In many cases, continued production and increased sales for these parts are based on their success achieved by the end user. Furthermore, in some cases, a change in product design may impact the continuation of these sales. As disclosed in previous filings, beginning first quarter of 2017, a major plastics customer decided to transfer production of custom molded parts produced by thermoforming to an out of state supplier who could produce these parts via injection molding. The major benefit to the customer was the ability to significantly lower their cost per unit. These parts had been previously thermoformed at Paradise Plastics facilities over the past nine years. Management in discussions with this customer offered to construct a new on-site building as well as purchase the necessary injection molding equipment to continue production, however, the offer was declined. With production of these parts coming to an end during the first quarter of 2017, net sales totaled $120,625 compared to $1,757,250 for the entire twelve months of 2016. This represents a decrease of $1,636,625 and is the primary reason for the decrease in plastics sales mentioned above. Reacting to this situation, management commenced an orderly reduction of hourly personnel associated with this loss of business during the first and second quarters of 2017. Now with the reduction in hourly personnel in place and along with the recent planned retirement of a Senior Vice President - Plastics, management has achieved labor savings in excess of $250,000 as of the date of this filing. It is also important to mention that Paradise Plastics is still producing other custom molding parts for this long term customer and is continuing to aggressively market its custom molding capabilities throughout the Southeast in order to replace this business. Management continues to closely monitor the impact this loss of business will have on its operations throughout the remainder of 2017 in order to determine if any additional changes to operations are warranted. If the Company is unable to replace these lost sales, its ability to recover goodwill of $413,280 related to Paradise Plastics could be affected.

The First Nine Months (Continued)Quarter

Paradise, Inc.’s fruit segment net sales for the first quarter of 2018 totaled $592,618 compared to net sales of $932,519 for the similar reporting period of 2017 representing a decrease of $339,901. The primary reason for this decrease relates to less sales of finished strawberry product produced and sold exclusively to a local distributor beginning in early March and running through mid-April of each year. As in previous years, Paradise, Inc., based on a negotiated price (i.e. tolling fee) will receive and process fresh strawberries through its production facilities on behalf of this distributor. With unfavorable market conditions and a shortage of available labor during the first quarter of 2018, tolling fees to this local distributor totaled $275,211 for the three months ended March 31, 2018 compared to $526,417 for the three months ended March 31, 2017. With strawberry tolling fees account for less than 5% of annual fruit segment net sales and were 54.8% of fruit segment sales during the first quarter of 2018 compared to 56.5% of first quarter 2017, no trend or forecast can be annual fruit segment sales can be projected based on this information.

Paradise Plastics, Inc., a wholly owned company of Paradise, Inc., which accounted for 23% of total net sales to unaffiliated customers for the previous year, generated net sales of $1,533,660 for the three months ended March 31, 2018 compared to $1,516,081 for the three months ended March 31, 2017. Plastics net sales continued to rebound from the negative impact absorbed from the loss of a portion of business from a major plastics customer’s decision to transfer production to another supplier that could produce these parts in a more cost effective method via injection molding. Paradise’s management offered to invest $3 million to construct a building and purchase the necessary equipment to retain this business, however, the offer was declined. With production of these parts ending in the latter stages of the first quarter of 2017, net sales decreased $1.6 million for the remainder of 2017. However, with increased demand from this major customer along with recent successes in developing new accounts over the past two operating quarters, management is confident it has taken the necessary actions to provide additional revenue for the remainder of 2018.

Consolidated cost of sales as a percentage of net sales increased 13.3%decreased 6.8% for the nine months ending September 30, 2017first quarter of 2018 compared to the similar reporting period of 2016. This is less than the 15% increase in cost of sales reported in the Company’s second quarter filing2017 as variable cost associated with the decrease in plastics sales still continued to outpace the reduction in labor and other variable expenses. However, ashigher value retail returns received from fruit segment customers represented a greater percentage of overall inventory as of March 31, 2018 compared to March 31, 2017. It is important to note that since annual fruit production representing more than 70%is not scheduled to commence until June 1, 2018, management allocates a percentage of operating expenses back into inventory based on a percentage of completion calculation. As of March 31, 2018, as no production cost has begun, 100% of sales, continuesfruit segment operating expenses totaling $1,187,446 have been allocated to produce inventory for sale well into the fourth quartercompared to 100% of the year, no meaningful forecastfruit segment operating expenses totaling $1,046,598 as of consolidated cost of sales can be reported until a full twelve months accounting of operations is completed.

March 31, 2017.

Selling, general & administrative expenses for the ninefirst three months ending September 30, 2017of 2018 decreased 11.7%11.3% to $2,484,532$779,515 from $2,774,766$878,693 for the ninefirst three months ending September 30, 2016of 2017 as Paradise, Inc. continuescontinued to receive savings from management’s decision to outsource all payroll savings dueand employee benefit program administration to fewer employees working withina national provider of these departments.services during the first quarter of 2017.

Other Significant Items

Other Income for the first nine monthsAccounts Receivable as of 2017March 31, 2018 totaled $44,678$1,163,303 compared to $19,846 for the similar reporting period$1,492,633 as of 2016.March 31, 2017. This increasedecrease of $329,330 is primarily related to the cash surrender valuedecrease in tolling fees earned for the production of two insurance policies owned by the Companyfresh strawberry products processed on behalf of two senior executives who have been employed by the Company for over fifty years. Paradise, Inc. is the beneficiary as to the premiums paid on behalfa local distributor of these two policies.

Inventory on hand increased by $319,126 to $12,316,778 as of September 30, 2017 from $11,997,652 as of September 30, 2016. 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 overlap into different quarterly filings period. Secondly, timing differences in levels of inventory will occur as shipments of fruit segment products to retail customers will also overlap quarterly filing dates. For the current reporting period, both factors were present as an increase in raw fruit materials received from overseas suppliers during the third quarter of 2017 along with a delay in shipments to retail customers until the fourth quarter of 2017 more than offset the decrease in plastics inventory levels as of September 30, 2017.

Short Term Debt and Accounts Payable balances largely comprised of liabilities for raw fruit materials increased $606,544 to $1,611,344 as of September 30, 2017 compared to $1,004,800 as of September 30, 2016. These two account balances are directly related to the increase in fruit inventory levels on hand as of September 30, 2017 as a greater percentage of raw fruit commodities were received from our international and domestic suppliers during the third quarter of 2017 compared to the similar period of 2016.

On July 28, 2017, Paradise, Inc. renewed its revolving line of credit with SunTrust Bank through 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%.products.

Other Significant Items (Continued)

Inventory levels as of March 31, 2018 increased$1,145,331 or 11.4% to $11,229,575 from $10,084,244 as of March 31, 2017. The primary reason for this was due to an increase in retail returns of approximately $500,000 during the first quarter of 2018. In addition, increased sales demand during the fourth quarter of 2017 and the first quarter of 2018 for plastics custom molding parts resulted in an additional $300,000 of plastics inventory as of March 31, 2018 compared to March 31, 2017. The remaining increase of approximately $150,000 was related to the receipt of raw fruit materials from the Company’s overseas supplier during the first quarter of 2018 compared to the first quarter of 2017.

Short Term Debt as of March 31, 2018 increased $140,601 to $797,254 from $656,653 and primarily consist of letters of credit issued by the Company’s banking institution to Paradise, Inc.’s overseas supplier of certain raw fruit materials. The bank makes direct payments to the overseas supplier and then charges Paradise, Inc. financesafter receipt of this raw fruit materials with term extending out 180 days. As the terms in payments are consistent from period to period, the increase balance as of March 31, 2018 compared to the balance as of March 31, 2017 is a function of timing as a greater percentage of product was received during the fourth quarter of 2017.

Accounts Payable as of March 31, 2018 decreased to $569,533 compared to $934,874 as of March 31, 2017 as several major suppliers of domestic fruit and plastics raw inventory were received in April of 2018 compared to March of 2017.

We finance our ongoing operations primarily with cash provided by our operating activities which are seasonal in nature.activities. Our principal sources of liquidity are our cash flows provided by operating activities, our existing cash, and a line of credit facility. At September 30, 2017March 31, 2018 and December 31, 2016,2017, we had $1,085,701$7.3 million and $9,240,638,$8.7 million, respectively, in cash. The decrease in cash during the first quarter of 2018 of $1.4 million is consistent with prior years as we will continue to use available cash reserves until we start to receive payments from our fruit customers after the start of our shipping season beginning in the fourth quarter of the year. Additionally, we have a revolving line of credit with a maximum limit of $12 million and a borrowing limit of 80% of the Company’s eligible receivables plus up to 60%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 September 30, 2017March 31, 2018 and $0 at December 31, 2016.2017. Within this agreement, there are letters of credit with a limit of $1,750,000, of which $428,346$797,254 was outstanding at September 30, 2017March 31, 2018 and $42,938$541,572 at December 31, 2016.2017. The line of credit agreement expires inon July 31, 2019. Net cash decreased by $8,154,937 for the nine months ended September 30, 2017 compared to $7,653,238 for the nine months ended September 30, 2016 as the Company needs approximately $1 million per month to acquire inventory and finance operations during the first nine months of the year.

Summary

Paradise, Inc.’s consolidated net sales decreased to $11,444,179 for the first ninethree months ended March 31, 2018 decreased $322,322 to $2,126,278 from $2,448,600 for the similar reporting period of 2017, from $13,950,369 for the first nine monthsrepresenting a decrease of 2016.13.2%. This decrease is dueprimarily related to two factors. First, timing differencesthe decline in shipmentsstrawberry tolling fees caused by unfavorable market conditions and a shortage of available labor resulted in tolling fees of $275,211. Correspondingly, cost of sales as a percentage of sales decreased 6.8% as increased returns of higher valued retail glace’ fruit orders were received into the first weekrepresented a greater percentage of October, 2017. As such, fruit segment sales for the first 5 daysending inventory as of October, 2017 totaled $2,193,260March 31, 2018 compared to $242,241 for the first five daysMarch 31, 2017. Selling, general and administrative expenses decreased 11.4% as of October 2016. Secondly, the decision byMarch 31, 2018 compared to March 31, 2017 as savings continued to be achieved from outsourcing payroll and employee benefits to a major plastics customer to change the design method and supplier for productionnational provider of custom molded parts from thermoforming to injection moldingthese services during the first quarter of 2017 is the primary reason that plastics segment sales decreased by $1,744,149 or 32.9% for the first nine months of 2017 compared to the similar reporting period of 2016. Correspondingly, cost of sales increased 13.2% as the decline in plastics sales outpaced the orderly reductions of labor cost that were phased in during the first and second quarters of 2017. Thus, the overall impactcombination of this activitythese events, after applying income tax benefits at March 31, 2018 and March 31, 2017 of $125,340 and $259,036, respectfully, resulted in a netconsolidated first quarter 2018 loss of $(448,618) for the nine months ending September 30, 2017$347,643 compared to net incomea first quarter 2017 loss of $653,271 for the nine months ending September 30, 2016.$409,036.

Summary (Continued)

However, it’s important to note that with less than 10% of anticipated 2018 fruit segment net sales processed and shipped as of March 31, 2018 and based on historical sales data which indicates that more than 80% of the Company’s annual fruit segment’s sales will occur during the months of September through November of each year, no realistic forecast or trend as to year end results can be developed as of the date of this filing.

Critical Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make assessments, estimates and assumptions that affect the amounts reported in the consolidated financial statements. We evaluate the accounting policies and estimates used to prepare the consolidated financial statements on an ongoing basis. Critical accounting estimates are those that require management’s most difficult, complex, or subjective judgments and have the most potential to impact our financial position and operating results. For a detailed discussion of our critical accounting estimates, see our Annual Report on Form 10-K for the year ended December 31, 2016.2017. There have been no material changes to our critical accounting estimates during the ninethree months ended September 30, 2017.March 31, 2018.

Impact of Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,Revenue from Contracts with Customers,which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The revenue guidance is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted as of the original effective date (annual reporting periods beginning after December 15, 2016). The ASU may be applied retrospectively to historical periods presented or as a cumulative-effect adjustment as of the date of adoption. The Company adopted the new standard will be effective retrospectively for the Company on January 1, 2018 which is the effective date for public companies. The standard permits the use of either theon a full retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU No. 2014-09 will have on its financial statements and related disclosures. The Company is finalizing reviews and working on implementing the process, policy and disclosure changes that will go into effect January 1, 2018. At this time, the Company does not expect abasis. There was no material financial impact from adopting the new revenue standard.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03,Simplifying the Presentation of Debt Issuance Costs(“ASU2015-03”). The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this standards update. The Company evaluated this ASU and began early adoption beginning with the annual period ended December 31, 2016. The adoption of this ASU did not have a material impact on the Company’s financial position or results of operations.

In July 2015, the FASB issued ASU No. 2015-11,Simplifying the Measurement of Inventory, which amends FASB ASU Topic 330,Inventory. This ASU requires entities to measure inventory at the lower of cost or net realizable value and eliminates the option that currently exists for measuring inventory at market value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This ASU should be applied prospectively with earlier application permitted. The adoption of this ASU did not have a material impact on the Company’s financial position or results of operations.

In November 2015, the FASB issued ASU No. 2015-17,Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes,which simplifies the presentation of deferred income taxes. The ASU provides presentation requirements to classify deferred tax assets and liabilities as noncurrent in a classified balance sheet. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for any interim and annual financial statements that have not yet been issued. The new guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements (Continued)

In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842)(ASU 2016-02). Under ASU No. 2016-2, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, 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 of September 30, 2017, our 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 sale. This material weakness in internal control resulted in a material misstatement of the financial statements and required restatement of the financial statements included in the Company’s Form 10-K for the year ended December 31, 2017 and in the Company’s Form 10-Q for the quarterly period ended March 31, 2018. These misstatements, which were not detected timely by management, were the result of inadequate design of controls pertaining to the Company’s review and ongoing monitoring of its procedures. The deficiency represents a material weakness in the Company’s internal control over financial reporting. 

As of June 30, 2018 and based upon that evaluation, including the fact that the Company has had to file restatements of its consolidated financial statements, the Company’s CEO and CFO concluded that 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.

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 the nine months ended September 30, 2017.our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Disclosure controls and procedures mean the methods designed to ensure that information that the Company is required to disclose in the reports that it files with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods required. Our controls and procedures are designed to ensure that all information required to be disclosed is accumulated and communicated to our management to allow timely decisions regarding disclosure. Our controls and procedures are also designed to provide reasonable assurance of the reliability of our financial reporting and accurate recording of our financial transactions.

A control system, however well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. There are inherent limitations in all control systems, and no evaluation of controls can provide absolute assurance that all control gaps or instances of fraud have been detected. These inherent limitations include the realities that the judgments in decision-making can be faulty, and that simple errors or mistakes can occur.

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.