Attached files
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2009
Commission File No. 0-19047
FOOD TECHNOLOGY SERVICE, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2618503
(State of Incorporation or Organization) (Employer Identification Number)
502 Prairie Mine Road, Mulberry, FL 33860
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (863)425-0039
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act: Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act: Yes [ ] No [ X ]
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 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.
Yes No
X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and no disclosure
will be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definition of "accelerated filer", "large
accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large Accelerated Filer [] Accelerated Filer []
Non-Accelerated Filer [X] Smaller Reporting Company []
The Registrant's operating revenues for its most recent fiscal year
were $2,515,978.
As of February 26, 2010, 2,756,458 shares of the Registrant's Common Stock
were outstanding, and the aggregate market value of the voting stock held
by non-affiliates (2,112,049 shares) was approximately $3,801,688 based
on the market price at that date.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Shareholders scheduled to be
held May 21, 2010.
TABLE OF CONTENTS
PART I
Item 1 Business
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
PART II
Item 5 Market for Registrant's Common Equity, Related Stockholder
Matters, and Issuer's Purchases of Equity Securities
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Item 9A(T) Controls and Procedures
PART III
Item 10 Directors, Executive Officers, and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13 Certain Relationships and Related Transactions and Director
Independence
Item 14 Principle Accounting Fees and Services
PART IV
Item 15 Exhibits and Financial Statement Schedules
PART I
Item 1. Description of Business
Food Technology Service, Inc., (the "Company") was organized as a Florida
corporation on December 11, 1985. The Company owns and operates an
irradiation facility located in Mulberry, Florida that uses gamma radiation to
provide contract sterilization services to the medical device, food
and consumer goods industries. The Company also irradiates packaging,
spices and ingredients. The Company's revenue for 2009 ($2,515,978)
resulted primarily from the processing of medical items and food. The
Company continues to diversify its customer base, however three
customers accounted for approximately 62% of revenues in 2009.
During the past few years, the Company has aggressively pursued
sterilization of medical devices to increase its customer base. Medical device
manufacturing is expanding rapidly due to improvements in medical technology
and an aging population structure in the U.S. The Company is certified to
International Organization for Standardization (ISO) standards for radiation
sterilization of medical devices, which is especially important for potential
customers exporting medical products to the EU and Canada. Medical device
sterilization represented approximately 72% of revenues in 2009. The State of
Florida is now the second leading state in the U.S. for FDA registered medical
device companies.
Food irradiation is a proven technology that can prevent food-borne
illness or prevent the spread of insect pests. The process is supported by the
U.S. Department of Agriculture, the U.S. Food and Drug Administration, the
World Health Organization, the American Medical Association, the American
Dietetic Association and other governmental and scientific organizations. Food
irradiation is a developing segment of the irradiation industry and the
Company is well-positioned to take advantage of future growth in this area.
Food irradiation was responsible for approximately 16% of revenues in 2009.
Although the Company focuses on medical sterilization and food
irradiation, the Company has and will continue to take advantage of profitable
opportunities to irradiate other products. In particular, the Company
irradiates packaging, cosmetic ingredients, horticultural items and consumer
goods. Such items accounted for approximately 12% of 2009 revenues.
Processing Plant Operations
Procedures
----------
Products to be irradiated are placed in a conveying system that moves the
items past a Cobalt 60 source at a rate that is dependent on the required
dose. The dose is also related to the density of the product and the
strength of the Cobalt 60 source. The actual dose received by a product
is verified through dosimeters placed on the product. The Company produces a
detailed record of the irradiation process for each product and maintains an
extensive quality assurance program. The process cannot make products
radioactive just as a dental x-ray does not make the patient's teeth
radioactive.
Personnel
---------
As of December 31, 2009, the Company had thirteen employees.
Cobalt 60 Supply
----------------
The level of radioactive energy of Cobalt 60 declines at approximately 1%
per month, and new Cobalt 60 must be purchased at intervals to accommodate
this decrease in energy as well as customer growth. MDS Nordion is the
Company's supplier of Cobalt 60 and has agreed to accept the return of all
Cobalt 60 that has reached the end of its useful life. Cobalt 60 is available
from one other source. See "Agreements with MDS Nordion" below.
Plant Safety and Regulatory Matters
Although a radiation source does require special handling, the necessary
precautions are implemented in regulations and practiced daily at the Company
and numerous other irradiation plants worldwide. The Company's irradiation
processing activities do not produce harmful solid, liquid or gas effluents or
pollutants. As a result of long experience in designing and operating similar
types of irradiation facilities, the necessary precautions for worker safety
in an irradiation facility are well regulated by the U.S. Nuclear Regulatory
Commission through the Florida Department of Health. The Florida Department
of Health licenses the facility and inspects it on a regular basis. The
facility is also inspected by the U.S. Department of Agriculture, the U.S.
Food and Drug Administration and the Florida Department of Agriculture and
Consumer Services. The notified body for certification to ISO standards
also audits the facility regularly.
Agreements with MDS Nordion
The Company, in September 1990, entered into an agreement with MDS
Nordion whereby MDS Nordion agreed to sell irradiation equipment and Cobalt 60
to the Company to operate its irradiation facility. To secure payment of the
purchase price, the Company and MDS Nordion executed a Convertible Debenture
and Security Agreement both dated January 15, 1992.
On October 22, 1991 the Company entered into a Reimbursement and
Indemnity Agreement with MDS Nordion whereby MDS Nordion assisted the Company
in obtaining a surety bond in the sum of $600,000 in order to meet State of
Florida facility permit bonding requirements. In connection therewith, the
Company agreed to reimburse MDS Nordion for any liability and expense which
MDS Nordion may sustain as a result of its commitments to the bond issuer and
secured such obligation under a Mortgage and Security Agreement dated October
22, 1991. The bond continues to be in effect.
By agreements dated March 6, 2001, April 17, 2001, May 18, 2001 and
November 20, 2001, the Company and MDS Nordion agreed and further confirmed
that the Debt and any future advances, including payment of guarantees or
indemnities to third parties made by MDS Nordion for the Company's benefit,
shall be convertible at MDS Nordion's option, at any time, into Common Stock
of the Company. The applicable conversion rate is determined based on 70% of
the closing price of the Company's shares of Common Stock listed on NASDAQ, on
the last trade date prior to the exercise of the conversion right. MDS
Nordion has waived its rights to convert interest accruing on the indebtedness
through January 1, 2010. All debt incurred under agreements with MDS Nordion
was paid in full on December 9, 2009.
In addition to Cobalt 60 purchased from MDS Nordion, MDS Nordion has
stored an additional amount of Cobalt 60 at the Company's facility in
anticipation of the Company's future needs. At the end of 2009, there were
approximately 1.0 million curies of Cobalt 60 both owned and stored at the
Company's facility. Title in and to 116,295 curies of Cobalt 60 located at the
facility remains the property of MDS Nordion and may be removed by MDS Nordion
at any time.
Item 2. Description of Properties
The Company's irradiation facility and executive office are located on
an approximately 2.17 acre site owned by the Company in Mulberry, Polk County,
Florida. The Company purchased the site because of its convenient access to
State Road 60, a major transportation artery between Central Florida near the
major interstate systems. The Company's irradiation facility and executive
office comprise approximately 28,800 square feet, including a 22,600 square
foot warehouse and loading and unloading area, a 3,200 square foot office
area, and a 3,000 square foot irradiation chamber and Cobalt 60 storage cell.
The Company's facility is designed to operate 24 hours per day, seven days per
week. As of December 31, 2009, the Company had in use approximately 1.0
million curies of Cobalt 60. The facility is licensed for a maximum of
4,500,000 curies of Cobalt 60 which allows production to be increased
significantly, if needed.
The Company has an approximately 8,000 square foot warehouse on 2.17 acres
of Company-owned land adjacent to the processing facility.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) The following table shows the range of closing bid prices for the
Company's Common Stock in the NASDAQ Small Cap market for the calendar
quarters indicated. The quotations represent prices in the over-the-counter
market between dealers in securities, do not include retail mark-up, markdown,
or commissions and do not necessarily represent actual transactions.
BID PRICES
------------
2008 High Low
---- ---- ---
First Quarter $2.85 $1.82
Second Quarter 2.58 1.62
Third Quarter 3.08 1.22
Fourth Quarter 1.32 .80
2009 High Low
---- ---- ---
First Quarter $2.43 $ .90
Second Quarter 3.00 1.51
Third Quarter 2.50 1.62
Fourth Quarter 2.08 1.60
(b) As of December 31, 2009 the approximate number of beneficial holders of
Common Stock of the Company was 3,500.
(c) The Company has paid no dividends to date and does not anticipate
paying any for the foreseeable future.
Item 6. Selected Financial Data
Not applicable.
Item 7. Management's Discussion and Analysis
Plan of Operations
------------------
Food Technology Service, Inc. had revenue of $2,515,978 in 2009 which is
comparable to the $2,507,078 realized in 2008. The Company periodically
evaluates the value of tax-loss carry-forward credits on its financial
statements as required by Generally Accepted Accounting Principles. In 2008,
the Company increased the value of the tax-loss carry-forward credits which
increased net income in 2008 and stockholders equity at December 31, 2008 by
$525,000. Based on increased profitability in 2009 and potential future
profitability, the Company again increased the value of the tax-loss carry-
forward credits which increased net income in 2009 and stockholders equity at
December 31, 2009 by $139,000. To facilitate comparison to prior year
operations, the Company had income before taxes of $559,358 in 2009 compared to
$505,387 in 2008, an increase of approximately 10.7 percent. Income per share
before taxes was $0.203 for 2009 compared to $0.183 for 2008. Due to the tax
credit, the Company had net income of $698,358 or $0.253 per share in 2009
compared to net income of $1,030,387 or $0.374 per share in 2008.
Revenue for the fourth quarter of 2009 was $640,039 compared to $641,731
during the same period in 2008.
Management attributes a lack of revenue growth in 2009 to the loss of a
large customer during the first quarter. The customer, which accounted for
approximately 25% of revenues in 2008 was purchased and moved to Texas. In
addition to revenues generated by that customer during the first quarter of
2009, revenue of $85,229 in lease termination fees was recognized from that
customer during the second quarter. The fact that annual and fourth quarter
revenues were nearly identical between 2009 and 2008 is an indication that the
Company has replaced much of the lost business.
During 2009, processing costs as a percentage of revenue were 21.4 percent
compared to 22.6 percent in 2008. This decrease was not significant and
reflects the fact that such costs are relatively fixed. General administrative
and development costs as a percentage of revenue during 2009 were 40.2 percent
compared to 39.3 percent in 2008. Again, this change is not significant and
reflects the relatively fixed nature of these costs.
In order to comply with FASB ASC 718, the Company continues to report the
value of stock-options granted as an item of expense. These options have been
issued to Company employees and Board members and are valued using the Black-
Scholes pricing method. This action increased expenses in 2009 by $39,383.
Although there is no assurance, management anticipates continued
profitability during 2010. Management does not anticipate any significant
increase in processing costs or general and administrative expenses as a
percentage of revenue during 2010.
Liquidity and Capital Resources
-------------------------------
All debt incurred under agreements with MDS Nordion was paid in full on
December 9, 2009.
At December 31, 2009, the Company had cash on hand of approximately
$610,311.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Company's Financial Statements included herewith.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A(T) Controls and Procedures
As of the end of the period covered by this report, an evaluation was
performed on the effectiveness of the design and operation of our disclosure
controls and procedures under the supervision and with the participation of our
management, including our Chief Executive Officer who also acts as the
Company's Chief Financial Officer. Based upon that evaluation, our Chief
Executive and Chief Financial Officer concluded that the design and operation
of our disclosure controls and procedures were effective as of the end of the
period covered by this report.
The management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting (as defined in
Securities Exchange Act Rules 13a-15(f) and 15d-15(f)). The Company's internal
control system was designed to provide reasonable assurance to the Company's
management and board of directors regarding the preparation and fair
presentation of published financial statements. All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
This annual report does not include an attestation report of the
Company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by
the Company's registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company to provide only
management's report in this annual report.
The Company's management assessed the effectiveness of the Company's
internal control over financial reporting as of December 31, 2009. In making
this assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") in Internal Control -
Integrated Framework. Based on this assessment, management believes that, as
of December 31, 2009, the Company's internal control over financial reporting
is effective.
There have been no changes in the Company's internal control over
financial reporting that occurred during the Company's last fiscal quarter
that materially affected, or are reasonably likely to materially affect the
Company's internal control over financial reporting.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Reference is made to the Company's Proxy Statement to be used in
conjunction with the 2010 Annual Shareholders Meeting scheduled to be held on
May 21, 2010.
Item 11. Executive Compensation
Reference is made to the Company's Proxy Statement to be used in
conjunction with the 2010 Annual Shareholders Meeting scheduled to be held on
May 21, 2010.
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Reference is made to the Company's Proxy Statement to be used in
conjunction with the 2010 Annual Shareholders Meeting scheduled to be held on
May 21, 2010.
Item 13. Certain Relationships and Related Transactions and Director
Independence
See Item 1 Business - "Agreements with MDS Nordion."
Item 14. Principle Accounting Fees and Services
Reference is made to the Company's Proxy Statement to be used in
conjunction with the 2010 Annual Shareholders Meeting scheduled to be held on
May 21, 2010.
Item 15. Exhibits
(1) Articles of Incorporation. Reference is made to Exhibit 3.1
included in the Company's Registration Statement on Form S-18
(File No. 33-36838-A).
(2) By-Laws. Reference is made to Exhibit 3.2 included in the
Company's Registration Statement on Form S-18 (File No. 33-36838-A).
(10) Agreements entered into by the Company with MDS Nordion
*(a) Reimbursement and Indemnity Agreement dated October 22, 1991
*(b) Agreement dated December 11, 1991
*(c) Debenture dated January 15, 1992
*(d) Copy of Security & Mortgage Agreement dated January 15, 1992
*(e) Financing Agreement dated February 21, 1992
*(f) Security Agreement dated February 21, 1992
**(g) Letter Agreement dated March 31, 1994 and April 13, 1994
***(h) Modification Agreement
****(14) Code of Ethics
*****(23.1) Information Concerning Consent of Faircloth & Associates Inc.
*****(31) Rule 13a-14(a)/15d-14(a) Certifications
*****(32) Section 1350 Certification
* Reference is made to Exhibit (c)(3) included in the
Company's Form 10-KSB Report filed for the year ended
December 31, 1991.
** Reference is made to Exhibit 10(g) included in the
Company's Form 10-KSB Report filed for the year ended
December 31, 1994.
*** Reference is made to Exhibit 10(h) included in the
Company's Form 10-KSB Report filed for the year ended
December 31, 2000.
**** Reference is made to Exhibit 14 included in the
Company's Form 10-KSB Report filed for the year ended
December 31, 2003.
***** Filed herewith.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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 as of the 30th of
March 2010.
FOOD TECHNOLOGY SERVICE, INC.
By: /S/ Richard G. Hunter, Ph.D.
--------------------------------
Richard G. Hunter, Ph.D.
Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
Name Title Date
---- ----- ----
/S/ Richard G. Hunter, Ph.D. Director March 30, 2010
-------------------------------
Richard G. Hunter, Ph.D.
Chief Executive Officer
and Chief Financial Officer
/S/ Samuel Bell Director March 30, 2010
-------------------------------
Samuel Bell
/S/ John Corley Director March 30, 2010
-------------------------------
John Corley
/S/ Gary Lifshin Director March 30, 2010
-------------------------------
Gary Lifshin
/S/ David Nicholds Director March 30, 2010
-------------------------------
David Nicholds
/S/ John T. Sinnott Director March 30, 2010
-------------------------------
John T. Sinnott, M.D., F.A.C.P
/S/ Ronald Thomas, Ph.D. Director March 30, 2010
-------------------------------
Ronald Thomas, Ph.D.
FOOD TECHNOLOGY SERVICE, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
(Faircloth & Associates, P.A.) 1
Report of Independent Registered Public Accounting Firm
(Ferlita, Walsh & Gonzalez, P.A.) 2
Financial Statements
Balance Sheet - December 31, 2009 and 2008 3 - 4
Statement of Operations - Years Ended December 31, 2009 and 2008 5
Statement of Stockholders' Equity - Years Ended December 31, 2009
and 2008 6
Statement of Cash Flows - Years Ended December 31, 2009 and 2008 7
Notes to Financial Statements 8 - 17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders
Food Technology Service, Inc.
We have audited the accompanying balance sheet of Food Technology
Service, Inc. as of December 31, 2008 and 2007 and the related statements of
operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Food Technology
Service, Inc. as of December 31, 2008 and 2007 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally accepted accounting
principles.
FAIRCLOTH & ASSOCIATES, P.A.
Tampa, Florida
February 10, 2009
THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY FAIRCLOTH & ASSOCIATES,
INC. IN CONNECTION WITH FOOD TECHNOLOGY SERVICE, INC.'S FILING ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 2008. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY
FAIRCLOTH & ASSOCIATES, INC. IN CONNECTION WITH THIS FILING ON FORM 10-K. SEE
EXHIBIT 23.1 FOR FURTHER DISCUSSION.
(1)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Food Technology Service, Inc.
Mulberry, Florida
We have audited the accompanying consolidated balance sheet of Food Technology
Service, Inc. as of December 31, 2009 and the related statement of income,
stockholders' equity, and cash flows for the year ended December 31, 2009.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of Food Technology Service, Inc. as of
December 31, 2008, were audited by other auditors whose report dated February
10, 2009, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Food Technology Service, Inc.
as of December 31, 2009 and the results of its operations and its cash flows
for the year ended December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America.
FERLITA, WALSH & GONZALEZ, P.A.
Certified Public Accountants
Tampa, Florida
March 12, 2010
(2)
FOOD TECHNOLOGY SERVICE, INC.
BALANCE SHEETS
December 31,
2009 2008
---- ----
ASSETS
------
Current Assets:
Cash $ 610,311 $ 216,978
Accounts Receivable, Less Allowance
for Doubtful Accounts of $2,500 213,752 268,305
Prepaid Expenses 31,807 33,329
Deferred Tax Asset 186,000 184,000
------------ ------------
Total Current Assets 1,041,870 702,612
------------ ------------
Property, Plant and Equipment:
Buildings 3,282,029 3,282,029
Cobalt 4,404,543 4,404,543
Furniture and Equipment 1,923,743 1,899,887
Less: Accumulated Depreciation (6,005,524) (5,619,783)
------------ ------------
3,604,791 3,966,676
Land 171,654 171,654
------------ ------------
Total Property, Plant and Equipment 3,776,445 4,138,330
------------ ------------
Other Assets:
Deferred Tax Asset 1,128,000 991,000
Utility Deposits 5,000 5,000
------------ ------------
Total Other Assets 1,133,000 996,000
------------ ------------
Total Assets $ 5,951,315 $ 5,836,942
============ ============
SEE NOTES TO FINANCIAL STATEMENTS
(3)
FOOD TECHNOLOGY SERVICE, INC.
BALANCE SHEETS
December 31,
2009 2008
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 36,556 $ 31,295
Financing Agreement Payable - 628,629
------------ ------------
Total Current Liabilities 36,556 659,924
------------ ------------
Stockholders' Equity:
Common Stock $.01 Par Value, Authorized
5,000,000 Shares, Issued 2,756,458 27,564 27,564
Paid-In Capital 12,186,827 12,147,444
Deficit (6,281,141) (6,979,499)
------------ ------------
5,933,250 5,195,509
Less, 5,154 Treasury Shares at Cost (18,491) (18,491)
------------ ------------
Total Stockholders' Equity 5,914,759 5,177,018
------------ ------------
Commitments and Contingencies
(Note I) -- --
Total Liabilities and Stockholders'
Equity $ 5,951,315 $ 5,836,942
============ ============
SEE NOTES TO FINANCIAL STATEMENTS
(4)
FOOD TECHNOLOGY SERVICE, INC.
STATEMENTS OF OPERATIONS
Year Ended
December 31,
2009 2008
---- ----
Net Revenues $ 2,515,978 $ 2,507,078
------------ ------------
Processing Costs 538,293 567,734
Selling, General and
Administrative 1,011,610 986,425
Depreciation 385,741 383,182
Interest Expense 20,976 64,350
------------ ------------
1,956,620 2,001,691
Income before
Income Taxes 559,358 505,387
Income Taxes
Current 210,500 204,000
Deferred Income Tax
(Benefit) (139,000) (525,000)
------------ ------------
Total 71,500 (321,000)
Income before Benefit
of Tax Loss Carryovers 487,858 826,387
Benefit of Tax Loss Carryovers 210,500 204,000
------------ ------------
Net Income $ 698,358 $ 1,030,387
============ ============
Net Income Per Common Share
-Basic $ 0.253 $ 0.374
-Diluted $ 0.248 $ 0.366
Weighted average number of common shares
used in computation
-Basic 2,756,458 2,756,458
-Diluted 2,816,458 2,816,458
SEE NOTES TO FINANCIAL STATEMENTS
(5)
FOOD TECHNOLOGY SERVICE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Common Paid-In Treasury
Stock Capital Deficit Stock
------- ------- ------- --------
Balance, December 31, 2007 27,564 12,114,350 (8,009,886) (18,491)
Stock Option Expense 33,094
Net Income for Year 1,030,387
---------- ------------ ------------ ----------
Balance, December 31, 2008 27,564 12,147,444 (6,979,499) (18,491)
Stock Option Expense 39,383
Net Income for Year 698,358
---------- ------------ ------------ ----------
Balance, December 31, 2009 $ 27,564 $ 12,186,827 $(6,281,141) $ (18,491)
========== ============ ============ ==========
SEE NOTES TO FINANCIAL STATEMENTS
(6)
FOOD TECHNOLOGY SERVICE, INC.
STATEMENT OF CASH FLOWS
Year Ended
December 31,
2009 2008
---- ----
Cash Flows from Operations:
Cash Received from Customers $ 2,570,531 $ 2,575,521
Interest Received 5,233 -
Cash Paid for Interest (20,976) (13,448)
Cash Paid for Operating Expenses (1,508,970) (1,552,831)
------------ ------------
Net Cash Provided/(Used) by Operations 1,045,818 1,009,242
Cash Flows from Investing Activities:
Purchase of Equipment and Cobalt (23,856) (604,313)
------------ ------------
Net Cash Provided/(Used) by Investing (23,856) (604,313)
Cash Flows from Financing Activities:
Repayment on Financing Agreement (628,629) (445,237)
------------ ------------
Net cash provided/(Used) by Financing (628,629) (445,237)
Net Increase (Decrease) in Cash 393,333 (40,308)
Cash at Beginning of Year 216,978 257,286
------------ ------------
Cash at End of Year $ 610,311 $ 216,978
============ ============
Reconciliation of Net Income (Loss) to
Net Cash Provided/(Used) by Operations:
Net Income/(Loss) $ 698,358 $ 1,030,387
Adjustments to Reconcile
Net Income/(Loss) to Cash Provided or Used:
Loan Cost Amortization 5,774 9,668
Deferred Income Taxes (139,000) (525,000)
Depreciation 385,741 383,182
Non Cash Payments of Interest
and Salaries 39,384 83,995
(Increase)/Decrease in Receivables 54,553 69,109
(Increase)/Decrease in Prepaid Expenses (4,254) (5,060)
Increase/(Decrease) in Payables
and Accruals 5,262 (37,039)
------------ ------------
Net Cash Provided/(Used) by Operations $ 1,045,818 $ 1,009,242
============ ============
Supplemental schedule of non-cash investing and financing activities.
The Company converted $50,903 of interest expense to debt in 2008.
SEE NOTES TO FINANCIAL STATEMENTS
(7)
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
Note A - Summary of Significant Accounting Policies
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows:
1. Nature of Business
The Company was organized in December 1985 and is engaged in the business of
operating a gamma irradiation facility using Cobalt 60 for the sterilization
of medical, surgical, pharmaceutical and packaging materials. It also
disinfects fruits, vegetables and meat products which extends their shelf life.
2. Use of Estimates
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. These estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing the financial statements.
3. Revenue Recognition
The primary source of revenue is from treating products with Cobalt. Net
Revenue is the gross income from such processing less allowances, if any.
Revenues are recorded after the Company's performance obligation is completed
and product has been processed in accordance with the customer's specifications
and collection of the resulting receivable is probable. A provision is made
for doubtful accounts which historically have not been significant.
4. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Assets other than Cobalt have
been depreciated using the straight-line method over the following lives for
both financial statement and tax purposes:
Building 31.5 years
Furniture and Equipment 5-15 Years
The total cost basis of Cobalt has been depreciated using engineering
estimates from published tables under which one-half of the remaining value is
written off over 5.26 year periods.
Estimated useful lives are periodically reviewed and if warranted, changes
will be made resulting in acceleration of depreciation.
MDS Nordion is the Company's supplier of Cobalt 60 and has agreed to accept the
return of all Cobalt 60 that has reached the end of its useful life; therefore,
the Company has no environmental remediation liability for the disposal of the
Cobalt 60.
(8)
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
Note A - Summary of Significant Accounting Policies (continued)
5. Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or
less are considered to be cash and cash equivalents.
6. Concentration of Credit Risk
The Company maintains its cash in three financial institutions. The Federal
Deposit Insurance Corporation insures up to $250,000 per legal entity per
financial institution and fully insures noninterest-bearing transaction accounts
until June 30, 2010. At December 31, 2009, the uninsured cash balance was $0.
7. Net Income Per Share
Basic net income per share is computed using the weighted average number of
common shares outstanding. Diluted net income per share is computed by the
weighted average number of common shares outstanding, plus the effect of common
stock equivalents that are dilutive.
8. Comprehensive Income
The only component of comprehensive income the Company has is net income.
9. Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, prepaid expenses, deposits,
accounts payable, accrued liabilities approximate fair value.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value, and accordingly, the estimates are not necessarily
exchange.
10. Stock Option Plans
The Company has various stock option plans for employees and other individuals
providing services to or serving as Directors of the Company. (See Note E)
Compensation cost under the plans is recognized using the fair value
recognition provisions of FASB ASC 718. Such cost is recognized for shares
expected to vest on a straight-line basis over the requisite service period of
the award using the Black-Scholes option-pricing model.
11. Reclassification
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
(9)
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
Note B - Financing Agreement
As of December 31, 2008 the Company owed MDS Nordion $628,629. On December 9,
2009 the debt was paid in full. The debt bears interest at prime plus 1%. The
total interest paid on the debt for 2009 was $20,976.
Note C - Lines of Credit
The Company has a letter of credit of $600,000 through MDS Nordian to satisfy
the requirements under the Radioactive Materials License from the State of
Florida. The letter of credit is guaranteed by MDS Nordion and is collateralized
by the Company's warehouse facility. The Company agreed to reimburse MDS Nordian
for the associated expenses relating to the letter of credit. The letter of
credit bears interest at prime plus 1%. As of December 31, 2009 the letter of
credit is still active with a $0 balance.
The Company has a separate line of credit available for the short term capital
needs of the Company with Magnify Credit Union for $300,000. The line of credit
is secured by the Company's warehouse and bears interest at the WSJ prime plus
1%. As of December, 31 2009 the Company has not used the line of credit.
Note D - Income Taxes
The Company has unused operating loss carry forwards available at December 31,
2009 of $4,931,966 for tax purposes. The loss carry forwards expire as follows:
Year Amount
---- ------
2010 $ 1,262,386
2011 1,048,800
2012 688,497
2018 647,341
2019 840,410
2020 86,215
2022 256,356
2024 101,961
-----------
$ 4,931,966
===========
During 2009 $563,789 of loss carry forwards were used and $675,801 expired.
The components of the provision for income taxes (benefits) are attribution to
continuing operations as follows:
(10)
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
Note D - Income Taxes (continued)
2009 2008
---- ----
Current
Federal $ 190,200 $ 183,600
State 20,300 20,400
----------- -----------
$ 210,500 $ 204,000
=========== ===========
Deferred
Federal (131,355) (496,125)
State (7,645) (28,875)
----------- -----------
$ (139,000) $ (525,000)
=========== ===========
Benefit of Tax Loss
Carryovers $ (210,500) $(204,000)
=========== ===========
Deferred income taxes reflect the estimated tax effect of temporary
differences between assets and liabilities for financial reporting purposes
and those amounts as measured by tax laws and net operating losses. The
components of deferred income tax assets and liabilities at December 31, 2009
and 2008 were as follows:
2009 2008
---- ----
Current Net operating loss $ 495,000 $ 490,000
Non-Current Net operating loss 1,361,000 1,970,000
------------ ------------
Total Net operating loss carry forwards 1,856,000 2,460,000
------------ ------------
Net deferred tax assets 1,856,000 2,460,000
Less - Valuation Allowance (542,000) (1,285,000)
------------ ------------
Deferred Tax Benefit $ 1,314,000 $ 1,175,000
============ ============
A valuation allowance has been established to eliminate the net deferred tax
benefit due to uncertainty as to whether the tax benefits would ever be
realized. During the year, as a result of the continuing diversification and
growth in customer base, ongoing profits from operations and the Company's
revised estimate of future taxable income, it was concluded that it is more
likely than not that future taxable income will be sufficient to realize a
larger portion of the Company's deferred asset.
(11)
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
Note D - Income Taxes (continued)
The Company believes that its estimate of future operations is conservative and
reasonable, but inherently uncertain. Accordingly, if future operations
generate taxable income greater than the projections, further adjustments to
reduce the reserve are possible. Conversely, if the Company realizes unforeseen
material losses in the future and its future projections of income decrease, the
allowance could be increased resulting in a charge to income.
Income taxes for the years ended December 31, 2009 and 2008 differ from the
amounts computed by applying the effective income tax rates of 37.63% and
40%, respectively, to income before income taxes as a result of the following:
2009 2008
---- ----
Expected provision at US statuary rate $ 190,200 $ 183,600
State income tax net of federal benefit 20,300 20,400
Nondeductible 4,400 6,856
Change in estimates and available NOL
carryforwards 389,100 86,144
Change in valuation allowance (743,000) (822,000)
------------ ------------
Income tax (benefit) $ (139,000) $ (525,000)
============ ============
The Company's tax years 2005 through 2008 remain open to examination by taxing
jurisdictions.
Note E - Stock Options
On February 9, 1999 the Board of Directors approved an option program for non-
employee Directors.
The program was amended in 2001 and 2005 to provide for the annual granting to
each non-employee Director of five year options to purchase 1,500 shares of
common stock, exercisable at the end of one year at the market value of the
shares of common stock on the date of grant. Also, the Chairman of the Board is
awarded annually five year options to purchase an additional 2,500 shares.
Shares were granted to Directors as follows:
Year Shares Per Share
---- ------ ---------
2006 10,000 $3.28
2007 10,000 $2.52
2008 11,500 $2.18
2009 11,500 $1.89
(12)
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
Note E - Stock Options (continued)
On June 23, 2000 the Stockholders approved the 2000 Incentive and
Non-Statutory Stock Option Plan (the "2000 Plan").
The 2000 Plan is administered by the Board of Directors who is authorized to
grant incentive stock options ("ISO's") to Officers and employees of the
Company and non-qualified options ("NQO's") for certain other individuals
providing services to or serving as Directors of the Company.
The maximum number of shares of the Company's Stock that may be issued under
the 2000 Plan is 125,000 shares. Options granted and outstanding under this
plan are as follows:
Year Shares
---- -------
2005 2,500
2006 100,000
2007 20,000
-------
122,500
=======
The ISO's are exercisable 20% of the authorized amount immediately and 20%
in each of the following four years. ISO's granted to an optionee terminate 30
to 90 days after termination of employment or other relationship, except that
ISO's terminate the earlier of the expiration date of the option, or 90 to 180
days in the event of death and 180 days to one year in the event of disability.
No further options are being issued under the 2000 Plan.
On May 14, 2009 the Stockholders approved the 2009 Incentive and Non-Statutory
Stock Option Plan (the "2009 Plan").
The 2009 Plan is administered by the Board of Directors who is authorized to
grant incentive stock options ("ISO's") to Officers and employees of the Company
and non-qualified options ("NQO's") for certain other individuals providing
services to or serving as Directors of the Company.
The maximum number of shares of the Company's Stock that may be issued under
the 2009 Plan is 125,000 shares.
As of December 31, 2009 options to purchase 11,500 shares have been granted
under this plan.
The aggregate fair market value (determined at the time an ISO is granted) of
the Common Stock with respect to which ISO's are exercisable for the first time
by any person during any calendar year under the Plans shall not exceed
$100,000.
(13)
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
Note E - Stock Options (continued)
The ISO's are exercisable 20% of the authorized amount immediately and 20% in
each of the following four years. ISO's granted to an optionee terminate 30 to
90 days after termination of employment or other relationship, except that ISO's
terminate the earlier of the expiration date of the option, or 90 to 180 days in
the event of death and 180 days to one year in the event of disability.
Changes that occurred in options outstanding are summarized below:
2009 2008
---- ----
Average Average
Exercise Exercise
Shares Price Shares Price
-------- ----- -------- -----
Outstanding at
beginning of year 232,250 $2.57 171,250 $3.26
Granted 11,500 $1.89 71,500 $1.15
Exercised -- -- -- --
Expired/canceled (1,500) $4.96 (10,500) $4.02
-------- ----- -------- -----
Outstanding at
end of year 242,250 $2.53 232,250 $2.57
Exercisable at
end of year 140,750 $2.84 83,250 $3.17
As mentioned in Note A, effective January 1, 2006, the Company adopted the
fair value recognition provisions of FASB ASC 718. As a result, additional
compensation expense of $39,383 and $33,094 was recorded in 2009 and 2008,
respectively. An additional $59,812 could be recorded over the
remaining vesting period of 60 months. The Company used the following
assumptions in applying the Black-Scholes pricing method:
2009 2008
---- ----
Risk free interest rate 1.98% 1.55%
Expected Volatility 81% 30%
Expected Life 5 years 5 years
Dividend Yield 0% 0%
Note F - Related Party Transactions:
The Company's supplier of Cobalt, MDS Nordion owns approximately 18.19% of the
Company's outstanding common stock (see Note B & C for financing agreement and
line of credit).
(14)
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
Note F - Related Party Transactions (continued)
The Company has recently purchased the following Cobalt from MDS Nordion:
Year Curies Amount
---- ------- --------
2007 384,065 $799,523
2008 200,000 470,688
Note G - Earnings Per Share
Earnings per share is calculated in accordance with ASC 260-10, "Earnings Per
Share". Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the years. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or
converted into common shares. Common share equivalents are excluded from the
computation of diluted earnings per share if their effects would be anti-
dilutive.
ASC 260-10 requires the presentation of both Basic EPS and Diluted EPS on the
face of the Company's Statements of Operations.
The following table sets forth the computation of basic and diluted per share
information:
2009 2008
------ ------
Numerator:
Net Income $ 698,358 $1,030,387
Dilutive effect of stock options 60,000 60,000
----------- -----------
Weighted average common
shares outstanding,
assuming dilution 2,816,458 2,816,458
=========== ===========
Potential common shares from out of the money options were excluded from the
computation of diluted EPS because calculation of the associated potential
common shares have an anti-dilutive effect on EPS. The following table lists
options that were excluded from EPS.
Out of the money options excluded
2009 2008
------ ------
Stock option with an exercise price of $3.60 5,000 5,000
Stock option with an exercise price of $4.56 2,500 2,500
Stock option with an exercise price of $4.12 7,000 7,000
(15)
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
Note G - Earnings Per Share (continued)
Stock option with an exercise price of $3.56 2,250 2,250
Stock option with an exercise price of $3.36 2,500 2,500
Stock option with an exercise price of $3.28 10,000 10,000
Stock option with an exercise price of $3.24 100,000 100,000
Stock option with an exercise price of $2.52 10,000 10,000
Stock option with an exercise price of $2.57 20,000 20,000
Stock option with an exercise price of $2.18 11,500 11,500
Stock option with an exercise price of $1.89 11,500 -
------- -------
Total anti-dilutive options excluded from EPS 182,250 170,750
======= =======
Note H - Concentration and Credit Risk
Although the Company continues to diversify its customer base, three customers
accounted for approximately 62% of revenues in 2009.
The Company's cash and accounts receivable are subject to potential credit
risk. Management continuously monitors the credit standing of the financial
institutions and customers with which the Company deals. A provision has been
made for doubtful accounts which historically have not been significant.
Note I - Commitments and Contingencies
On March 11, 2006, the Board of Directors extended the President's employment
contract for five years commencing September 1, 2006 at an annual salary of
$110,000 ($115,000 as amended) plus options to purchase 100,000 shares of the
Company's common stock at $3.24.
Note J - Recent Accounting Pronouncements
Adoption of New Accounting Standards
In May 2009, the FASB issued FASB ASC 855-10-05, "Subsequent Events", which
requires companies to evaluate events and transactions that occur after the
balance sheet date but before the date the financial statements are issued,
or available to be issued in the case of non-public entities. FASB ASC
855-10-05 requires entities to recognize in the financial statements the
effect of all events or transactions that provide additional evidence of
conditions that existed at the balance sheet date, including the estimates
inherent in the financial preparation process. Entities shall not recognize
the impact of enters or transactions that provide evidence about conditions
that did not exist at the balance sheet date but arose after that date. FASB
ASC 855-10-05, also requires entities to disclose the date through which
subsequent events have been evaluated. FASB ASC 855-10-05 is effective for
the interim and annual reporting periods ending after June 15, 2009. We
adopted the provisions of FASB ASC 855-10-05 for the year ended December 31,
(16)
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
Note J - Recent Accounting Pronouncements (continued)
2009, as required, the adoption did not have a material impact on our
financial statements.
In June 2009, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles - a
replacement of FASB Statement No. 162" ("The Codification"). The Codification
reorganized existing U.S. accounting and reporting standards issued by the FASB
and other related private sector standard setters into a single source of
authoritative accounting principles arranged by topic. The Codification
supersedes all existing U.S. accounting standards; all other accounting
literature not included in the Codification (other than Securities and Exchange
Commission guidance for publicly-traded companies) is considered non-
authoritative. The Codification was effective on a prospective basis for
interim and annual reporting periods ending after September 15, 2009. The
adoption of the Codification changed the Company's references to U.S. GAAP
accounting standards but did not impact the Company's financial statements.
Note K - Subsequent Events
We have evaluated subsequent events for recognition or disclosure in these
financial statements through the date of issuance of these financial statements,
and determined there are no material transactions to recognize or disclose.
(17
