U.S. UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________
x | Quarterly report pursuant to section 13 or 15(d) of the Securities Act of 1934. |
For the quarterly period ended September 30, 2017March 31, 2019
or
¨ | Transition report pursuant to section 13 or 15(d) of the Securities Act of 1934. |
Commission File No. 0-3026000-03026
__________________
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,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
Securities registered pursuant to Section 12(b) of the Act: None | ||
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
N/A | N/A | N/A |
The number of shares outstanding of each of the issuer’s classes of common stock as of November 14, 2017May 20, 2019 was 519,600 shares.
PARADISE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017MARCH 31, 2019
INDEX
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements |
PARADISE, INC. AND SUBSIDIARIES
AS OF | AS OF | |||||||||||||||||||||||
SEPTEMBER 30, | AS OF | SEPTEMBER 30, | AS OF | AS OF | ||||||||||||||||||||
2017 | DECEMBER 31, | 2016 | MARCH 31, | AS OF | MARCH 31, | |||||||||||||||||||
(UNAUDITED) | 2016 | (UNAUDITED) | 2019 | DECEMBER 31, | 2018 | |||||||||||||||||||
(UNAUDITED) | 2018 | (UNAUDITED) | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||||||||||
Cash | $ | 1,085,701 | $ | 9,240,638 | $ | 1,138,700 | $ | 7,167,345 | $ | 8,036,052 | $ | 7,272,479 | ||||||||||||
Accounts Receivable, | ||||||||||||||||||||||||
Less, Allowances of $0 (09/30/17), $1,215,153 (12/31/16) and $0 (09/30/16) | 5,409,122 | 2,108,608 | 6,378,274 | |||||||||||||||||||||
Less, Allowances of $437,043 (03/31/19), | ||||||||||||||||||||||||
$1,000,826 (12/31/18) and $0 (03/31/18) | 928,842 | 1,993,564 | 1,163,303 | |||||||||||||||||||||
Inventories: | ||||||||||||||||||||||||
Raw Materials | 7,669,182 | 5,254,103 | 7,605,280 | 8,537,465 | 6,509,732 | 8,466,419 | ||||||||||||||||||
Work in Process | 394,889 | 1,026,657 | 333,884 | 1,209 | 885,655 | 11,265 | ||||||||||||||||||
Supplies | 165,413 | 165,446 | 161,258 | 203,562 | 203,562 | 194,346 | ||||||||||||||||||
Finished Goods | 4,087,294 | 1,858,827 | 3,897,230 | 2,722,998 | 1,732,584 | 2,557,545 | ||||||||||||||||||
Income Tax Receivable | 655,304 | - | - | 294,007 | 175,042 | 334,956 | ||||||||||||||||||
Prepaid Expenses and Other Current Assets | 351,500 | 296,851 | 455,684 | 137,010 | 257,949 | 116,404 | ||||||||||||||||||
Total Current Assets | 19,818,405 | 19,951,130 | 19,970,310 | 19,992,438 | 19,794,140 | 20,116,717 | ||||||||||||||||||
Property, Plant and Equipment, | ||||||||||||||||||||||||
Less, Accumulated Depreciation of $18,958,502 (09/30/17), $18,650,822 (12/31/16) and $18,557,477 (09/30/16) | 4,342,539 | 4,162,636 | 3,919,133 | |||||||||||||||||||||
Less, Accumulated Depreciation of | ||||||||||||||||||||||||
$19,556,393 (03/31/19), $19,455,531 (12/31/18) and $19,146,653 (03/31/18) | 4,079,789 | 4,126,848 | 4,236,170 | |||||||||||||||||||||
Goodwill | 413,280 | 413,280 | 413,280 | - | 413,280 | 413,280 | ||||||||||||||||||
Deferred Income Taxes | 126,084 | 126,084 | - | |||||||||||||||||||||
Other Assets | 375,718 | 393,994 | 381,149 | 437,136 | 323,390 | 406,549 | ||||||||||||||||||
TOTAL ASSETS | $ | 24,949,942 | $ | 24,921,040 | $ | 24,683,872 | $ | 24,635,447 | $ | 24,783,742 | $ | 25,172,716 |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
2 |
AS OF | AS OF | |||||||||||
SEPTEMBER 30, | AS OF | SEPTEMBER 30, | ||||||||||
2017 | DECEMBER 31, | 2016 | ||||||||||
(UNAUDITED) | 2016 | (UNAUDITED) | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Short Term Debt | $ | 428,346 | $ | 42,938 | $ | 291,838 | ||||||
Accounts Payable | 1,182,998 | 808,696 | 712,962 | |||||||||
Accrued Liabilities | 536,887 | 689,177 | 607,603 | |||||||||
Income Taxes Payable | - | - | 193,185 | |||||||||
Total Current Liabilities | 2,148,231 | 1,540,811 | 1,805,588 | |||||||||
DEFERRED INCOME TAX LIABILITY | 126,482 | 126,482 | 73,291 | |||||||||
Total Liabilities | 2,274,713 | 1,667,293 | 1,878,879 | |||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||
Common Stock: $0.30 Par Value, 2,000,000 Shares Authorized, 583,094 Shares Issued, 519,600 Shares Outstanding | 174,928 | 174,928 | 174,928 | |||||||||
Capital in Excess of Par Value | 1,288,793 | 1,288,793 | 1,288,793 | |||||||||
Retained Earnings | 21,484,727 | 22,063,245 | 21,614,491 | |||||||||
Treasury Stock, at Cost, 63,494 Shares | (273,219 | ) | (273,219 | ) | (273,219 | ) | ||||||
Total Stockholders’ Equity | 22,675,229 | 23,253,747 | 22,804,993 | |||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 24,949,942 | $ | 24,921,040 | $ | 24,683,872 |
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED | ||||||||
SEPTEMBER 30, | ||||||||
2017 | 2016 | |||||||
Net Sales | $ | 7,644,130 | $ | 8,884,152 | ||||
Costs and Expenses: | ||||||||
Cost of Goods Sold | 6,225,065 | 6,173,066 | ||||||
Selling, General and Administrative Expense | 1,007,875 | 1,098,845 | ||||||
Amortization Expense | 3,000 | 2,000 | ||||||
Total Costs and Expenses | 7,235,940 | 7,273,911 | ||||||
Income from Operations | 408,190 | 1,610,241 | ||||||
Other Expenses | (2,037 | ) | (30,856 | ) | ||||
Income from Operations Before Income Taxes | 406,153 | 1,579,385 | ||||||
Provision for Income Taxes | 164,398 | 631,753 | ||||||
Net Income | $ | 241,755 | $ | 947,632 | ||||
Income per Common Share (Basic and Diluted) | $ | 0.47 | $ | 1.82 | ||||
Dividend per Common Share | $ | 0.00 | $ | 0.00 |
AS OF | AS OF | |||||||||||
MARCH 31, | AS OF | MARCH 31, | ||||||||||
2019 | DECEMBER 31, | 2018 | ||||||||||
(UNAUDITED) | 2018 | (UNAUDITED) | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Short Term Debt | $ | 624,166 | $ | 284,016 | $ | 797,254 | ||||||
Accounts Payable | 934,108 | 931,424 | 569,533 | |||||||||
Accrued Credits Due Fruit Customers | 100,100 | 333,244 | 455,896 | |||||||||
Accrued Expenses and Other Liabilities | 560,221 | 488,248 | 253,269 | |||||||||
Total Current Liabilities | 2,218,595 | 2,036,932 | 2,075,952 | |||||||||
DEFERRED INCOME TAXES | - | - | 83,687 | |||||||||
Total Liabilities | 2,218,595 | 2,036,932 | 2,159,639 | |||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||
Common Stock: $0.30 Par Value, 2,000,000 Shares Authorized, 583,094 Shares Issued, 519,600 Shares Outstanding | 174,928 | 174,928 | 174,928 | |||||||||
Capital in Excess of Par Value | 1,288,793 | 1,288,793 | 1,288,793 | |||||||||
Retained Earnings | 21,226,350 | 21,556,308 | 21,822,575 | |||||||||
Treasury Stock, at Cost, 63,494 Shares | (273,219 | ) | (273,219 | ) | (273,219 | ) | ||||||
Total Stockholders’ Equity | 22,416,852 | 22,746,810 | 23,013,077 | |||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 24,635,447 | $ | 24,783,742 | $ | 25,172,716 |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
3 |
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED | ||||||||
MARCH 31, | ||||||||
2019 | 2018 | |||||||
Net Sales | $ | 2,042,072 | $ | 2,126,278 | ||||
Costs and Expenses: | ||||||||
Cost of Goods Sold | 1,305,839 | 1,813,782 | ||||||
Selling, General and Administrative Expense | 818,989 | 779,515 | ||||||
Goodwill Impairment | 413,280 | - | ||||||
Amortization Expense | 4,500 | 4,500 | ||||||
Total Costs and Expenses | 2,542,608 | 2,597,797 | ||||||
Loss from Operations | (500,536 | ) | (471,519 | ) | ||||
Other Income (Expense) | 51,613 | (1,464 | ) | |||||
Loss Before Income Taxes | (448,923 | ) | (472,983 | ) | ||||
Income Tax Benefit | 118,965 | 125,340 | ||||||
Net Loss | $ | (329,958 | ) | $ | (347,643 | ) | ||
Loss per Common Share (Basic and Diluted) | $ | (0.64 | ) | $ | (0.67 | ) | ||
Dividend per Common Share | $ | 0.00 | $ | 0.15 |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
4 |
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSCHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
FOR THE NINE MONTHS ENDED | ||||||||
SEPTEMBER 30, | ||||||||
2017 | 2016 | |||||||
Net Sales | $ | 11,444,179 | $ | 13,950,369 | ||||
Costs and Expenses: | ||||||||
Cost of Goods Sold | 9,749,021 | 10,038,462 | ||||||
Selling, General and Administrative Expense | 2,484,532 | 2,774,766 | ||||||
Amortization Expense | 3,000 | 68,203 | ||||||
Total Costs and Expenses | 12,236,553 | 12,881,431 | ||||||
(Loss) Income from Operations | (792,374 | ) | 1,068,938 | |||||
Other Income | 44,678 | 19,846 | ||||||
(Loss) Income from Operations Before Income Taxes | (747,696 | ) | 1,088,784 | |||||
Benefit (Provision) for Income Taxes | 299,078 | (435,513 | ) | |||||
Net (Loss) Income | $ | (448,618 | ) | $ | 653,271 | |||
(Loss) Income per Common Share (Basic and Diluted) | $ | (0.86 | ) | $ | 1.26 | |||
Dividend per Common Share | $ | 0.25 | $ | 0.15 |
CAPITAL IN | ||||||||||||||||||||
COMMON | EXCESS OF | RETAINED | TREASURY | |||||||||||||||||
STOCK | PAR VALUE | EARNINGS | STOCK | TOTAL | ||||||||||||||||
Balance, December 31, 2017 | $ | 174,928 | $ | 1,288,793 | $ | 22,248,158 | $ | (273,219 | ) | $ | 23,438,660 | |||||||||
Cash Dividends Declared, $0.15 per Share | (77,940 | ) | (77,940 | ) | ||||||||||||||||
Net Loss | (613,910 | ) | (613,910 | ) | ||||||||||||||||
Balance, December 31, 2018 | 174,928 | 1,288,793 | 21,556,308 | (273,219 | ) | 22,746,810 | ||||||||||||||
Net Loss | (329,958 | ) | (329,958 | ) | ||||||||||||||||
Balance, March 31, 2019 | $ | 174,928 | $ | 1,288,793 | $ | 21,226,350 | $ | (273,219 | ) | $ | 22,416,852 |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
5 |
PARADISE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED | FOR THE THREE MONTHS ENDED | |||||||||||||||
SEPTEMBER 30, | MARCH 31, | |||||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net (Loss) Income | $ | (448,618 | ) | $ | 653,271 | |||||||||||
Adjustments to Reconcile Net (Loss) Income to Net Cash Used in Operating Activities: | ||||||||||||||||
Net Loss | $ | (329,958 | ) | $ | (347,643 | ) | ||||||||||
Adjustments to Reconcile Net Loss to Net Cash | ||||||||||||||||
Used in Operating Activities: | ||||||||||||||||
Depreciation and Amortization | 310,785 | 367,329 | 105,363 | 105,749 | ||||||||||||
(Increase) Decrease in: | ||||||||||||||||
Goodwill Impairment | 413,280 | - | ||||||||||||||
Decrease (Increase) in: | ||||||||||||||||
Accounts Receivable | (3,300,514 | ) | (4,195,968 | ) | 1,064,722 | 707,346 | ||||||||||
Inventories | (4,011,745 | ) | (3,817,983 | ) | (2,133,701 | ) | (1,700,930 | ) | ||||||||
Prepaid Expenses | (54,649 | ) | (137,434 | ) | ||||||||||||
Prepaid Expenses and Other Current Assets | 120,939 | 107,980 | ||||||||||||||
Income Tax Receivable | (118,965 | ) | (125,340 | ) | ||||||||||||
Other Assets | 15,276 | 5,166 | (159,080 | ) | (61,134 | ) | ||||||||||
Income Tax Asset | (655,304 | ) | - | |||||||||||||
Increase (Decrease) in: | ||||||||||||||||
Accounts Payable | 374,302 | 101,874 | 2,684 | (69,360 | ) | |||||||||||
Accrued Liabilities | (152,290 | ) | 33,227 | (203,009 | ) | (197,691 | ) | |||||||||
Net Cash Used in Operating Activities | (7,922,757 | ) | (6,990,518 | ) | (1,237,725 | ) | (1,581,023 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchase of Property and Equipment | (487,688 | ) | (293,779 | ) | (11,966 | ) | (65,692 | ) | ||||||||
Increase in Cash Surrender Value of Life Insurance | 45,334 | - | ||||||||||||||
Net Cash Used in Investing Activities | (487,688 | ) | (293,779 | ) | ||||||||||||
Net Cash Provided by (Used in) Investing Activities | 33,368 | (65,692 | ) | |||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds from Short Term Debt | 335,650 | 382,330 | ||||||||||||||
Payments on Short Term Debt | (680,763 | ) | (863,527 | ) | - | (131,148 | ) | |||||||||
Proceeds from Short Term Debt | 1,066,171 | 572,526 | ||||||||||||||
Dividends Paid | (129,900 | ) | (77,940 | ) | ||||||||||||
Net Cash Provided by (Used in) Financing Activities | 255,508 | (368,941 | ) | |||||||||||||
Net Cash Provided by Financing Activities | 335,650 | 251,182 | ||||||||||||||
NET DECREASE IN CASH | (8,154,937 | ) | (7,653,238 | ) | (868,707 | ) | (1,395,533 | ) | ||||||||
CASH, AT BEGINNING OF PERIOD | 9,240,638 | 8,791,938 | 8,036,052 | 8,668,012 | ||||||||||||
CASH, AT END OF PERIOD | $ | 1,085,701 | $ | 1,138,700 | $ | 7,167,345 | $ | 7,272,479 | ||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid for: | ||||||||||||||||
Income Tax | $ | 357,510 | $ | 353,346 | $ | - | $ | - | ||||||||
�� | ||||||||||||||||
Noncash financing activity: | ||||||||||||||||
Dividends Declared | $ | - | $ | 77,940 |
See Accompanying Notes to these Consolidated Financial Statements (Unaudited)
6 |
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 | BASIS OF PRESENTATION |
The accompanying unaudited consolidated financial statements of Paradise, Inc. (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.
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, 2016.2018. The Company’s management believes that the disclosures are sufficient for interim financial reporting purposes.
Consumer demand for glace’glacé fruit product is traditionally strongest during the Thanksgiving and Christmas season. Almost 80% of glace’glacé 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, 2019 are not necessarily indicative of the results that may be expected for the current year.
Certain minor reclassifications have been made to the consolidated unaudited financial statements for the three and nine months ended September 30, 2016 to conform to the classifications used for the three and nine months ended September 30, 2017.
NOTE 2 | IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,Revenue from Contracts with Customers,which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will 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 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 ofadopted the new standard across its operations and the consolidated financial statements, which will consist primarily of recordingon January 1, 2019 on a modified retrospective basis. A right of use asset and respective liability were included in assets and corresponding lease liabilities as of January 1, 2019 in the amount of approximately $42,000. There was no material financial impact.
7 |
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2 | IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED) |
In June 2016, the FASB issued an ASU on the balance sheetmeasurement of credit losses on financial instruments. This ASU requires entities to measure the impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. This ASU is effective for operating leases.
fiscal years beginning after December 15, 2019, with early adoption permitted for financial statement periods beginning after December 15, 2018. We are currently assessing the guidance. This ASU is not expected to have a material impact on our consolidated financial statements.
Except as noted above, the Company’s management does not believe that recent codified pronouncements by the Financial Accounting Standards Board (“FASB”) (including its EITF), the AICPA or the Securities and Exchange Commission will have a material impact on the Company’s current or future consolidated financial statements.
NOTE 3 |
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.
NOTE 4 | REVENUE |
The Company recognizes revenue from the sale of candied fruit products which are sold to manufacturing bakers, institutional users and retailers. The Company also recognizes revenue from the sale of molded plastics to unaffiliated customers. Revenue is recognized upon the shipment or delivery of goods depending on the agreed upon terms with the customer and is reported net of applicable provisions for discounts, returns, incentives and allowances.
The Company recognizes revenue when performance obligations are satisfied by transferring control of the goods to customers. Control is transferred upon shipment or delivery of the goods to the customer. At the time of delivery, the customer is invoiced with payment terms which are commensurate with the customer’s credit profile. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs.
The Company assesses the goods and services promised in its customers’ purchase orders and identifies a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Company considers all the goods or services promised, whether explicitly stated or implied based on customary business practices.
8 |
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE | BUSINESS SEGMENT DATA |
The Company’s operations are conducted through two business segments. These segments, and the primary operations of each, are as follows:
Business Segment | Operation | ||
Fruit | Production of candied fruit, a basic fruitcake ingredient, sold to manufacturing bakers, institutional users, and retailers for use in home baking. Also, based on market conditions, the processing of frozen strawberry products, for sale to commercial and institutional users such as preservers, dairies, drink manufacturers, etc. | ||
Molded Plastics | Production of plastics containers and other molded plastics for sale to various food processors and others. |
Three months ended | Three months ended | |||||||
September 30, | September 30, | |||||||
2017 | 2016 | |||||||
Net Sales in Each Segment | ||||||||
Fruit: | ||||||||
Sales to Unaffiliated Customers | $ | 6,605,247 | $ | 7,389,005 | ||||
Molded Plastics: | ||||||||
Sales to Unaffiliated Customers | 1,038,883 | 1,495,147 | ||||||
Net Sales | $ | 7,644,130 | $ | 8,884,152 |
Nine months ended | Nine months ended | |||||||
September 30, | September 30, | |||||||
2017 | 2016 | |||||||
Net Sales in Each Segment | ||||||||
Fruit: | ||||||||
Sales to Unaffiliated Customers | $ | 7,881,622 | $ | 8,643,663 | ||||
Molded Plastics: | ||||||||
Sales to Unaffiliated Customers | 3,562,557 | 5,306,706 | ||||||
Net Sales | $ | 11,444,179 | $ | 13,950,369 |
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
March 31, | March 31, | |||||||
2019 | 2018 | |||||||
Net Sales in Each Segment | ||||||||
Fruit: | ||||||||
Sales to Unaffiliated Customers | $ | 690,918 | $ | 592,618 | ||||
Molded Plastics: | ||||||||
Sales to Unaffiliated Customers | 1,351,154 | 1,533,660 | ||||||
Net Sales | $ | 2,042,072 | $ | 2,126,278 |
The Company does not prepare operating profit or loss information on a segment basis for internal use, until the end of each year. Due to the seasonal nature of the fruit segment, management believes that it is not practical to prepare this information for interim reporting purposes. Therefore, reporting is not required by accounting principles generally accepted in the United States of America.
September 30, | September 30, | |||||||
2017 | 2016 | |||||||
Identifiable Assets of Each Segment are Listed Below: | ||||||||
Fruit | $ | 17,733,521 | $ | 17,678,419 | ||||
Molded Plastics | 4,020,398 | 4,399,853 | ||||||
Identifiable Assets | 21,753,919 | 22,078,272 | ||||||
General Corporate Assets | 3,196,023 | 2,605,600 | ||||||
Total Assets | $ | 24,949,942 | $ | 24,683,872 |
9 |
PARADISE, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 | BUSINESS SEGMENT DATA (CONTINUED) |
March 31, | March 31, | |||||||
2019 | 2018 | |||||||
Identifiable Assets of Each Segment are Listed Below: | ||||||||
Fruit | $ | 10,947,784 | $ | 11,812,208 | ||||
Molded Plastics | 4,853,716 | 4,416,137 | ||||||
Identifiable Assets | 15,801,500 | 16,228,345 | ||||||
General Corporate Assets | 8,833,947 | 8,944,371 | ||||||
Total Assets | $ | 24,635,447 | $ | 25,172,716 |
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.
NOTE 6 | SUBSEQUENT EVENT |
On April 15, 2019, Paradise, Inc. (the “Company”) entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Seneca Foods Corporation(“Seneca”) and its subsidiary (the “Buyer”). Pursuant to the Purchase Agreement, Buyer would acquire substantially all of the assets of the Company engaged in the production, manufacture, sale and distribution of glacé fruit product (the “Fruit Business”) on the satisfaction or waiver of the closing conditions set forth in the Purchase Agreement, which include approval of the transactions contemplated by the Purchase Agreement by holders of a majority of the Company’s outstanding common stock. The Company expects to call and hold a shareholders’ meeting seeking to obtain this approval and separate approval of a plan of dissolution and liquidation of its remaining assets, including the Company’s plastics division and its real property located in Plant City, Florida.
10 |
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward–Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact should be considered “forward-looking statements” for the purpose of these provisions, including statements that include projections of, or expectations about, earnings,revenues, costs or other financial items, statements about our plans and objectives for future operations,futureoperations, statements concerningaboutthe transactions contemplated by the Asset Purchase Agreement with Seneca Foods Corporation, statements about the proposed new products or services ,plan of dissolution and liquidation, statements about the related shareholder approval, 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’glacé fruit, a prime ingredient of fruitcakes and other holiday confections, represented 68.7%74% of total net sales during 2016.2018. These products are sold to manufacturing bakers, institutional users, supermarkets and other retailers throughout the country. Consumer demand for glace’glacé fruit product is traditionally strongest during the Thanksgiving and Christmas season. Almost 80% of glace’glacé fruit product sales are ordinarily 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’glacé 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.businesssegment, producing custom molding products, is not subject to the seasonality of the glace’theglacé 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.
11 |
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
The First Nine MonthsQuarter
Paradise, Inc.’s fruit segment net sales for the first nine monthsquarter of 2017 decreased 8.9%2019 totaled $690,918 compared to $7,881,622 from $8,643,663net sales of $592,618 for the similar nine month reporting period of 2016. This decrease is primarily related to timing differences in the receipt2018 representing an increase 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$98,300. It should be noted that fruit segment net sales during the first quarter of 13.4%the year in the past have represented less than 5% of annual net sales. Products sold during the first quarter are mainly fruit ingredients produced in bulk quantities for industrial bakeries and supermarkets leading up to the Easter holiday period and the processing of fresh strawberries through its production facilities on behalf of a local Plant City, Florida distributor. Paradise, Inc., receives a negotiated fee (tolling fee) based on the number of pounds processed through its plant for this distributor. The combination of sales for bulk fruit along with the tolling fees accrued for the first three months of 2019 totaled $773,541 compared to $869,944 for the 8.9% decrease reported above. Management has consistently disclosed that interim filings are not reliable financial indicatorsfirst three months of year-end performance. Only after a full2018. Also, during the first quarter of every year, management reviews its provision for sales returns recorded as of December 31st relating to retail products shipped to its customers during the previous year’s selling season, which eliminates such timing differencesbeginning in mid-September and running through the Thanksgiving and Christmas season. In addition, the Company reviews its accrual of a certain percentage of expenses related to datesvarious customer incentive programs for media print advertising or in-store promotions during the previous holiday selling season. As a result of opening orders shipped, receivedmanagement improving upon and placed in stores by our customers, will the Company have the necessary sales data to determine if its salesdeveloping more conservative estimates around retail returns and marketing effortscustomer incentive programs for the current year ended, there were successful.minimal downward adjustments during the period ended March 31, 2019.
Paradise, Plastics, Inc., (Paradise Plastics) a wholly owned company of Paradise, Inc.,’s molded plastics segment, which accounted for 31.3%26% of total net sales to unaffiliated customers for the previous year, generated net sales of $3,562,557$1,351,154 for the ninethree months ended September 30, 2017March 31, 2019 compared to $5,306,706$1,533,660 for the similar reporting periodthree months ended March 31, 2018. This decrease in net sales of 2016. This represents a decrease$182,506 is directly related to timing as the shipment of $1,744,149 or 32.9%. Paradise Plastics produces various types ofnew 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 endorders completed during the first quarter of 2017,2019 was delayed into the second quarter of 2019.
Consolidated cost of sales as a percentage of net sales totaled $120,625decreased 21% for the first quarter of 2019 compared to $1,757,250the first quarter of 2018. There are two main reasons 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 personneldecrease. First, fruit segment expenses associated with this lossbrining operations regarding the processing of businessorange peel received from a Central Florida supplier did not occur during the first quarter of 2019. Instead, the Company decided to contract for brined orange peel from an overseas supplier. This eliminated the need to hire additional labor during the first quarter resulting in payroll 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 laborpayroll related savings in excess of $250,000$100,000 for the first quarter of 2019 compared to the first quarter of 2018. Second, the plastics segment received an increase in new customer purchase orders during the fourth quarter of 2018 and the first quarter of 2019. These new orders resulted in an increase of plastics finished goods inventory in excess of $300,000 as of March 31, 2019 compared to March 31, 2018 as the delivery of customer orders did not begin until the start of the second quarter of 2019. As a majority of plastics overhead such as labor, depreciation, property insurance and real estate taxes are relatively fixed from quarter to quarter an increase in production will have a positive impact (decrease) on cost of sales.
Selling, general & administrative (SG&A) expenses for the first three months of 2019 increased $39,474 to $818,989 from $779,515 for the first three months of 2018 as activities related to increases in professional fees incurred in exploring strategic alternatives, which began in February 2018, are still ongoing 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.
12 |
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
Other Significant Items
As disclosed in Note 6 – Subsequent Event, on April 15, 2019, Paradise, Inc. (the “Company”) entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Seneca Foods Corporation (“Seneca”) and its subsidiary (the “Buyer”). Pursuant to the Purchase Agreement, Buyer would acquire substantially all of the assets of the Company engaged in the production, manufacture, sale and distribution of glacé fruit product (the “Fruit Business”) on the satisfaction or waiver of the closing conditions set forth in the Purchase Agreement, which include approval of the transactions contemplated by the Purchase Agreement by holders of a majority of the Company’s outstanding common stock.
The Company expects to call and hold a shareholders’ meeting seeking to obtain this approval and separate approval of a plan of dissolution and liquidation of its remaining assets, including the Company’s plastics division and its real property located in Plant City, Florida. As it relates to the liquidation of the plastics segment, management has determined the full carrying amount of goodwill exceeds its implied fair value. Therefore, Management has decided to charge this amount, $413,280, to earnings as of March 31, 2019.
Short Term Debt as of March 31, 2019 totaled $624,166 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 upon shipment and then charges Paradise, Inc. after receipt of these raw fruit materials with term extending to 180 days. As payment terms are consistent from period to period, the decrease in the liability as of March 31, 2019 of $624,166 compared to the liability of $797,254 as of March 31, 2018 relates to a decrease in the amount of product ordered from our overseas supplier for 2019.
Accounts Payable as of March 31, 2019 increased to $934,105 compared to $569,533 as of March 31, 2018, as the raw materials for several new plastics customers were purchased during the latter stage of the first quarter of 2019 compared to 2018. All outstanding invoices are paid within 30 days of receipt from our suppliers.
The Company after completing a Phase 1 and Phase 2 environmental study of its real property has engaged the services of an environmental consulting & contracting firm to provide remedial services. The cost to provide these services approximate $50,000. This amount is included in other liabilities on the Company’s balance sheet as of March 31, 2019.
Other Income (Expense) as of March 31, 2019 was $51,613 compared to ($1,464) as of March 31, 2018. This is primarily related to the split dollar life insurance policies for two senior members of Company management along with occasional recycling income related to scrap materials. For the first three months of 2019, the cash surrender value of these two polices increased $45,334 compared to a decrease of ($1,464) for the first three months of 2018.
13 |
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
The First Nine Months (Continued)Liquidity and Capital Resources
Consolidated cost of sales as a percentage of net sales increased 13.3% for the nine months ending September 30, 2017 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 filing as variable cost associated with the decrease in plastics sales still continued to outpace the reduction in labor and other variable expenses. However, as fruit segment production, representing more than 70% of cost of sales, continues to produce inventory for sale well into the fourth quarter of the year, no meaningful forecast of consolidated cost of sales can be reported until a full twelve months accounting of operations is completed.
Selling, general & administrative expenses for the nine months ending September 30, 2017 decreased 11.7% to $2,484,532 from $2,774,766 for the nine months ending September 30, 2016 as Paradise, Inc. continues to receive payroll savings due to fewer employees working within these departments.
Other Significant Items
Other Income for the first nine months of 2017 totaled $44,678 compared to $19,846 for the similar reporting period of 2016. This increase is related to the cash surrender value of two insurance policies owned by the Company on behalf of two senior executives who have been employed by the Company for over fifty years. Paradise, Inc. is the beneficiary as to the premiums paid on behalf 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 fromWe finance 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%.
Other Significant Items (Continued)
Paradise, Inc. finances 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, 2019 and December 31, 2016,2018, we had $1,085,701approximately $7.2 million and $9,240,638,$8.0 million, respectively, in cash. The decrease in cash during the first quarter of 2019 of $0.9 million is consistent with prior years as we generally have 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, 2019 and $0 at December 31, 2016.2018. Within this agreement, there are letters of credit with a limit of $1,750,000, of which $428,346$624,166 was outstanding at September 30, 2017March 31, 2019 and $42,938$284,016 at December 31, 2016.2018. 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 of 2017ended March 31, 2019 decreased $84,206 to $2,042,072 from $13,950,369$2,126,278 for the first ninethree months of 2016.ended March 31, 2018. This decrease is duerelated to two factors. First, timing differencesfirst, the delay in shipmentsthe shipment of retail fruit orders were received into the first week of October, 2017. As such, fruit segment sales for the first 5 days of October, 2017 totaled $2,193,260 compared to $242,241 for the first five days of October 2016. Secondly, the decision by a major plastics customer to change the design method and supplier for production of custom molded parts from thermoforming to injection moldingfinished goods purchase orders made during the first quarter of 2017 is2019 into the primary reason that plasticssecond quarter of 2019. Secondly, the Company’s decision to purchase orange peel in brine from an overseas supplier reduced Paradise, Inc.’s fruit segment sales decreased by $1,744,149 or 32.9% forpayroll in excess of $100,000 during the first nine monthsquarter of 2017 compared to the similar reporting period of 2016.2019. Correspondingly, cost of sales increased 13.2%as a percentage of sales decreased 21% as the declinefactory overhead absorbed by the increased production of finished goods inventory remained on the balance sheet as of March 31, 2019. Offsetting the decrease in plasticscost of sales outpacedwas management’s decision to impair goodwill of $413,280. This coupled with an increase in SG&A expenses related to the orderly reductionsongoing expenses of labor cost that were phasedthe Company’s financial advisor in duringconnection with the first and second quartersexploration of 2017. Thus, the overall impact of this activitystrategic opportunities resulted in a net lossLoss from Operations of $(448,618)($500,536) for the ninethree months ending September 30, 2017ended March 31, 2019 compared to net incomea Loss from Operations of $653,271($471,519) for the ninethree months endingended March 31, 2018. It is important to note that with less than 5% of anticipated 2019 fruit segment net sales (assuming no closing of the asset sale to Seneca) processed and shipped as of March 31, 2019 and based on historical sales data which indicates that more than 80% of the Company’s annual fruit segment’s sales occurs during the months of September 30, 2016.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. In this context, it is also important to note that the anticipated closing of the asset sale to Seneca would mean that the Company would no longer have fruit segment sales after such closing, which is anticipated to occur prior to September. However, the Company can make no assurances that the asset sale will actually close or as to the timing of such closing.
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) |
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, 2016.2018. There have been no material changes to our critical accounting estimates during the ninethree months ended September 30, 2017.March 31, 2019.
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 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 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 ofadopted the new standard across its operations and the consolidated financial statements, which will consist primarily of recordingon January 1, 2019 on a modified retrospective basis. A right of use asset and respective liability were included in assets and corresponding lease liabilities as of January 1, 2019 in the amount of approximately $42,000. There was no material financial impact.
In June 2016, the FASB issued an ASU on the balance sheetmeasurement of credit losses on financial instruments. This ASU requires entities to measure the impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. This ASU is effective for operating leases.
fiscal years beginning after December 15, 2019, with early adoption permitted for financial statement periods beginning after December 15, 2018. We are currently assessing the guidance. This ASU is not expected to have a material impact on our consolidated financial statements.
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.
15 |
PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
PART I. | FINANCIAL INFORMATION |
Item 3. | Quantitative and Qualitative Disclosure |
Item 4. | Controls and Procedures |
(a) | Evaluation of Disclosure Controls and Procedures. |
As
Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of September 30, 2017, 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 nine months ended September 30, 2017.Exchange Act) as of the end of the period covered by this report.
Disclosure controls and procedures mean 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.
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 sales. 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 March 31, 2019, 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 March 31, 2019 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, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
(b) | Changes in Internal Control over Financial Reporting. |
Except as noted above, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
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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 |
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PARADISE, INC. | COMMISSION FILE NO. 0-3026 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PARADISE, INC. | |||
A Florida Corporation | |||
/s/ Randy S. Gordon | Date: | ||
Randy S. Gordon | |||
President and Chief Executive Officer | |||
/s/ Jack M. Laskowitz | Date: | ||
Jack M. Laskowitz | |||
Chief Financial Officer and Treasurer |
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