UNITED STATES

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 10-Q

______________

For the quarterly period ended SeptemberJune 30, 20172019

or

Commission File No. 0-3026

__________________000-03026

PARADISE, INC.

________________

INCORPORATED IN FLORIDA

I.R.S. EMPLOYER IDENTIFICATION NO. 59-1007583

1200 W. DR. MARTIN LUTHER KING, JR. BLVD.,

PLANT CITY, FLORIDA 33563

(813) 752-1155

__________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yesx    No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive dataData File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).        Yesx    No¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

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.

The number of shares outstanding of each of the issuer’s classes of common stock as of November 14, 2017August 19, 2019 was 519,600 shares.

PARADISE, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20172019

INDEX

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

PARADISE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

See Accompanying Notes to these Consolidated Financial Statements (Unaudited)

Overview / Recent Developments (Continued)

On July 31, 2019, the Company completed the sale of substantially all of its assets (the “Asset Sale”) engaged in the production, manufacture, sale and distribution of glacé fruit product (the “Fruit Business”) to Seneca Foods Corporation and its subsidiary (collectively, “Seneca”) in accordance with the terms of the Asset Purchase Agreement among such parties dated as of April 15, 2019 (the “Purchase Agreement”).

In accordance with the terms of the Purchase Agreement, the aggregate purchase price for the Fruit Business was approximately $13.7 million, consisting of cash consideration of approximately $13.4 million (as adjusted for the final inventory value calculated shortly following closing) and assumed liabilities of approximately $0.3 million. Approximately $0.4 million of the cash purchase price was used to repay the Company’s outstanding balance under its revolving credit facility, which terminated at closing, and $0.9 million of the cash purchase price is being held in escrow to satisfy indemnification obligations of the Company.

On July 31, 2019, in connection with the Asset Sale and as contemplated by the Purchase Agreement, the Company entered into a Co-Pack Agreement with Seneca, pursuant to which the Company has agreed to process, manufacture and package the products of the Fruit Business for Seneca for the 2019 season using the equipment and inventory purchased by Seneca pursuant to the Purchase Agreement. Pursuant to the Co-Pack Agreement, Seneca will make weekly payments to the Company based on an agreed upon budget that includes a 10% profit, with a true-up payment by or to the Company to be made at the end of the season.

In connection with the Purchase Agreement, Randy S. Gordon, Mark H. Gordon and Tracy W. Schulis entered into consulting agreements with Seneca. The description of such agreements is incorporated herein by reference to the section titled “Consulting Agreements” on page 43 of the Company’s definitive proxy statement on Schedule 14A filed on July 8, 2019.  Pursuant to his retention agreement with the Company, Jack  Laskowitz received a bonus in the amount of  $75,000 upon the closing of the Asset Sale.

Pursuant to their employment agreements with the Company, Randy S. Gordon, Mark H. Gordon, and Tracy W. Schulis are entitled to severance payments if terminated following either the consummation of the Asset Sale or the sale of substantially all of the assets of the Company in Liquidation. The payments are described in detail in the section titled “The Severance Payments Proposal” beginning on page 77 of the Company’s definitive proxy statement on Schedule 14A filed on July 8, 2019, which disclosure is incorporated herein by reference.

On July 29, 2019, the shareholders of the Company approved the Plan of Complete Liquidation and Dissolution (the “Liquidation Plan”), which gives the Company’s Board of Directors discretion to determine when and whether to proceed with the Liquidation Plan and which the Board envisions will lead to the sale of the Company’s remaining assets, including its plastics business and real estate.   See the section titled “Timing and Effect of Liquidation and Business Activities During Liquidation”  beginning on page 57 of the Company’s definitive proxy statement on Schedule 14A filed on July 8, 2019, which disclosure is incorporated herein by reference.  

The Company plans to terminate its registration under the Exchange Act and cease filing periodic reports with the SEC as soon as practicable. 

As a result of the Company closing the Asset Sale and entering into the Co-Pack Agreement, the results of operations and financial condition discussed in this section are not indicative of the results of operations and financial condition the Company expects for the remainder of 2019.

The First Six Months

Paradise, Inc.’s consolidated net sales for the six months ended June 30, 2019 decreased $134,944 to $3,514,431 from $3,649,375 for the six months ended June 30, 2018. Cost of sales as a percentage of total sales increased 23% as the Company purchased finished brine inventory during the first six months instead of processing fruit through the Company’s in house brining facility as in the prior year. This increase in cost of sales combined with the impairment of the Plastics segment’s goodwill for $413,280 resulted in a loss from operations of $(2,426,786) for the first six months of 2019 compared to $(1,223,605) for the first six months of 2018.

The First NineSix Months (Continued)

Paradise, Inc.’s fruit segment net sales for the first ninesix months of 2017 decreased 8.9%2019 totaled $1,157,961 compared to $7,881,622 from $8,643,663net sales of $819,291 for the similar nine month reporting period of 2016. This decrease is2018 representing an increase of $338,670. Products sold during the first six months of the year are primarily related to timing differencesfruit ingredients produced in bulk quantities for industrial bakeries and supermarkets leading up and through the receiptEaster holiday period along with the processing of customer’s purchase orders andfresh strawberries through its production facilities on behalf of a local Plant City, Florida distributor. Paradise, Inc., received a negotiated fee (tolling fee) based on the corresponding shipmentnumber of these orders. Changes in datespounds processed through its plant for this distributor. The combination of opening orders from long-time customers between interim reporting periods will have a direct impact on net sales comparisons. Paradise, Inc. recognizes netof bulk fruit ingredients along with the tolling fees accrued for the first six months of 2019 totaled $1,284,346 compared to $1,296,935 for the first six months of 2018. During the first six months of the year, management reviewed its provision for sales generally upon receiptreturns recorded as of itsDecember 31^st relating to retail products byshipped to 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 fullprevious year’s selling season, which eliminates such timing differencesbeginning in mid-September and running through the Thanksgiving and Christmas season. In addition, the Company reviewed 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, willdeveloping more conservative estimates for retail returns and customer incentive programs, there were minimal downward adjustments during the Company have the necessary sales data to determine if its sales and marketing efforts for the current year were successful.six month period ended June 30, 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$2,356,470 for the ninesix months ended SeptemberJune 30, 20172019 compared to $5,306,706$2,830,084 for the similar reporting periodsix months ended June 30, 2018. This decrease in net sales of 2016. This represents$473,614 is due to a decrease in orders from a long term customer along with delays in 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, net sales totaled $120,625 compared to $1,757,250 for the entire twelveseveral months of 2016. This represents a decrease2019 into the second half 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.2019.

The First Nine Months (Continued)

Consolidated cost of sales as a percentage of net sales increased 13.3%23% for the ninefirst six months ending September 30, 2017of 2019 compared to the similar reporting periodfirst six months of 2016. This2018. The primary reason for this increase is that the Company’s Central Florida supplier of orange peel (peel) was unable to fulfill the Company’s 2019 estimated production needs. Thus, management contracted for the purchase of brined peel from an overseas supplier and expensed significant factory overhead. It should be noted that processing of fruit materials produced in finished goods inventory was less than 25% complete for the 15% increase in costfirst six months 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, asoperations for 2019. Thus, until 100% of all raw fruit segment production, representing more than 70% of cost of sales, continues to producematerials have been processed into finished goods inventory for sale well into the fourth quarterno reasonable estimate of the year, no meaningful forecast of consolidated cost of sales can be determined from results reported until a full twelve months accountingas of operations is completed.

June 30, 2019.

Selling, general & administrative (SG&A) 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 Incomeremained consistent for the first ninesix months of 20172019 as SG&A expenses totaled $44,678$1,592,418 compared to $19,846$1,556,857 for the similar reporting periodfirst six months of 2016. This increase is2019 as activities related to exploring strategic alternatives, which began in February 2018 continued beyond the cash surrender valueend 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 thirdsecond 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%.

Other Significant Items (Continued)

Short Term Debt as of June 30, 2019 totaled $382,210 and primarily consisted 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. financesafter 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 June 30, 2019 to $382,210 compared to the liability of $543,310 as of June 30, 2018 relates to a decrease in the amount of product ordered from our overseas supplier for 2019.

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 $60,000. This amount is included in other liabilities on the Company’s balance sheet as of June 30, 2019.

Other Income for the six months ended June 30, 2019 was $83,866 compared to $24,213 for the six months ended June 30, 2018. This increase is related to the increase in value of life insurance policies for two senior members of Company’s Board of Directors. Paradise, Inc. is a beneficiary on the two insurance policies for the amount of premiums paid to-date.

Liquidity and Capital Resources

We finance our ongoing operations primarily with cash provided by our operating activities which are seasonal in nature. Ouractivities. Historically, our principal sources of liquidity arehave been our cash flows provided by operating activities, our existing cash, and a line of credit facility. At SeptemberJune 30, 20172019 and December 31, 2016,2018, we had $1,085,701approximately $2.4 million and $9,240,638,$8.0 million, respectively, in cash. The decrease in cash during the first six months of 2019 of $5.6 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 havehad 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 SeptemberJune 30, 20172019 and $0 at December 31, 2016.2018. Within this agreement, there arewere letters of credit with a limit of $1,750,000, of which $428,346$382,210 was outstanding at SeptemberJune 30, 20172019 and $42,938$284,016 at December 31, 2016.2018. The line of credit agreement expiresexpired on July 31, 2019 and it was not renewed.

In connection with the Asset Sale described in July, 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 assection entitled “Overview / Recent Developments” above, the Company needsreceived cash proceeds of approximately $1$13.0 million per monthafter repaying the outstanding balance under its revolving credit facility, with $0.9 million of such cash proceeds being held in escrow to acquire inventory and finance operations during the first nine monthssatisfy indemnification obligations of the year.Company.

Summary

Paradise Inc.’s consolidated net sales decreased to $11,444,179 forFollowing the first nine monthsclosing of 2017the Asset Sale on July 31, 2019 and continuing through the 2019 season, the Company is receiving weekly payments from $13,950,369 for the first nine months of 2016. This decrease is due to two factors. First, timing differences in shipments 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 decisionSeneca based on an agreed upon budget that includes a 10% profit, with a true-up payment by a major plastics customer to change the design method and supplier for production of custom molded parts from thermoforming to injection molding 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 periodCompany to be made at the end of 2016. Correspondingly, cost of sales increased 13.2% as the declineseason, pursuant to the Co-Pack Agreement described 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 impact of this activity resulted in a net loss of $(448,618) for the nine months ending September 30, 2017 compared to net income of $653,271 for the nine months ending September 30, 2016.

section entitled “Overview / Recent Developments” above.

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 ninesix months ended SeptemberJune 30, 2017.2019.

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 replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. 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 the 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 a material financial impact from adopting the new 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.

As(a) Evaluation of September 30, 2017, ourDisclosure Controls and Procedures.

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s President and Chief Executive Officer (“CEO”) and Chief Financial Officer have evaluated(“CFO”), of the effectiveness of the Company’s disclosure controls and procedures 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 June 30, 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 June 30, 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.

On July 31, 2019, in connection with the Asset Sale described in the section entitled “Overview / Recent Developments” in Item 2 above and as contemplated by the Purchase Agreement, the Company entered into a Co-Pack Agreement with Seneca, pursuant to which the Company will process, manufacture and package the products of the Fruit Business for Seneca for the 2019 season using the equipment and inventory purchased by Seneca pursuant to the Purchase Agreement. Pursuant to the Co-Pack Agreement, Seneca will make weekly payments to the Company based on an agreed upon budget that includes a 10% profit, with a true-up payment by or to the Company to be made at the end of the season.