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Table of Contents

 

 

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 EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [                    ] to [                    ]

Commission File Number 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)

(863) 425-0039

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or 15(d) of the Exchange Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 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).    Yes  x    No  ¨

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   ¨    Smaller Reporting Company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x

There were 2,836,299 shares of the Registrant’s common stock, $.01 par value per share, issued and outstanding as of July 29, 2013.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

            Page  

PART I. FINANCIAL INFORMATION

  

Item 1

    

Financial Statements:

  
    

Balance Sheets – As of June 30, 2013 and December 31, 2012

     3   
    

Statements of Operations – For the Three Months Ended June 30, 2013 and 2012

     5   
    

Statements of Operations – For the Six Months Ended June 30, 2013 and 2012

     6   
    

Statements of Cash Flows – For the Six Months Ended June 30, 2013 and 2012

     7   
    

Notes to Financial Statements

     8   

Item 2

    

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     15   

Item 3

    

Quantitative and Qualitative Disclosures About Market Risk

     15   

Item 4T

    

Controls and Procedures

     15   

PART II. OTHER INFORMATION

  

Item 1

    

Legal Proceedings

     16   

Item 2

    

Unregistered Sales of Equity Securities and Use of Proceeds

     16   

Item 3

    

Defaults Upon Senior Securities

     16   

Item 4

    

Submission of Matters to a Vote of Security Holders

     16   

Item 5

    

Other Information

     16   

Item 6

    

Exhibits

     16   

SIGNATURES

  


Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

FOOD TECHNOLOGY SERVICE, INC.

BALANCE SHEETS

 

     As of June 30,
2013
    As of December 31,
2012
 
     (Unaudited)     (Audited)  
ASSETS   

Current Assets:

    

Cash

   $ 2,949,777      $ 2,336,814   

Certificate of Deposit, Restricted

     150,307        150,169   

Accounts Receivable, Less Allowance for Doubtful Accounts of $5,000

     645,958        444,902   

Other Receivable

     9,220        11,390   

Prepaid Expenses

     53,168        16,979   

Deferred Tax Asset

     184,700        521,000   
  

 

 

   

 

 

 

Total Current Assets

     3,993,130        3,481,254   

Property, Plant and Equipment:

    

Buildings

     3,488,668        3,488,668   

Cobalt

     6,934,390        6,934,390   

Furniture and Equipment

     1,303,175        2,835,228   

Land

     171,654        171,654   

Less: Accumulated Depreciation

     (6,015,318     (7,249,229
  

 

 

   

 

 

 

Total Property, Plant and Equipment

     5,882,569        6,180,711   

Other Assets:

    

Utility Deposits

     5,000        5,000   

Loan Fees - Net

     7,852        4,192   
  

 

 

   

 

 

 

Total Other Assets

     12,852        9,192   
  

 

 

   

 

 

 

Total Assets

   $ 9,888,551      $ 9,671,157   
  

 

 

   

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

3


Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

BALANCE SHEETS

 

     As of June 30,
2013
    As of December 31,
2012
 
     (Unaudited)     (Audited)  
LIABILITIES AND STOCKHOLDERS’ EQUITY   

Current Liabilities:

    

Accounts Payable

   $ 8,993      $ 196,338   

Accrued Liabilities

     103,291        256,117   
  

 

 

   

 

 

 

Total Current Liabilities

     112,284        452,455   

Deferred Tax Liabilities

     120,500        125,400   
  

 

 

   

 

 

 

Total Liabilities

     232,784        577,855   

Stockholders’ Equity:

    

Common Stock $.01 Par Value, Authorized 5,000,000 Shares, Issued 2,836,299 and 2,827,042

     28,362        28,354   

Paid-In Capital

     12,409,022        12,391,689   

Deficit

     (2,763,126     (3,308,250

Less, 5,154 Treasury Shares at Cost

     (18,491     (18,491
  

 

 

   

 

 

 

Total Stockholders’ Equity

     9,655,767        9,093,302   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 9,888,551      $ 9,671,157   
  

 

 

   

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

4


Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

STATEMENTS OF OPERATIONS

 

     Three Months Ended
June 30,
 
     2013     2012  
     (Unaudited)     (Unaudited)  

Net Revenues

   $ 1,136,748      $ 1,019,823   
  

 

 

   

 

 

 

Costs and Operating Expenses

    

Processing Costs

     173,999        165,729   

Selling, General and Administrative

     341,571        310,627   

Depreciation and Amortization

     169,001        127,055   
  

 

 

   

 

 

 

Total Costs and Operating Expenses

     684,571        603,411   
  

 

 

   

 

 

 

Income from Operations

     452,177        416,412   

Interest Income

     272        218   
  

 

 

   

 

 

 

Income before Income Taxes

     452,449        416,630   

Income Tax (Expense) Benefit - Deferred

     (171,100     (157,300
  

 

 

   

 

 

 

Net Income

   $ 281,349      $ 259,330   
  

 

 

   

 

 

 

Net Income Per Common Share

    

-Basic

   $ 0.099      $ 0.092   

-Diluted

   $ 0.096      $ 0.088   

Weighted Average Number of Common Shares Used in Computation

    

-Basic

     2,835,870        2,826,801   

-Diluted

     2,922,870        2,938,801   

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

5


Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

STATEMENTS OF OPERATIONS

 

     Six Months Ended
June 30,
 
     2013     2012  
     (Unaudited)     (Unaudited)  

Net Revenues

   $ 2,209,903      $ 2,070,439   
  

 

 

   

 

 

 

Costs and Operating Expenses

    

Processing Costs

     336,660        331,849   

Selling, General and Administrative

     654,845        624,277   

Depreciation and Amortization

     343,187        258,419   
  

 

 

   

 

 

 

Total Costs and Operating Expenses

     1,334,692        1,214,545   
  

 

 

   

 

 

 

Income from Operations

     875,211        855,894   

Interest Income

     512        390   
  

 

 

   

 

 

 

Income before Income Taxes

     875,723        856,284   

Income Tax (Expense) Benefit - Deferred

     (330,600     (323,100
  

 

 

   

 

 

 

Net Income

   $ 545,123      $ 533,184   
  

 

 

   

 

 

 

Net Income Per Common Share

    

-Basic

     0.192        0.189   

-Diluted

     0.187        0.182   

Weighted Average Number of Common Shares Used in Computation

    

-Basic

     2,835,662        2,815,327   

-Diluted

     2,922,662        2,927,327   

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

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Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

STATEMENTS OF CASH FLOWS

 

     Six Months Ended
June 30,
 
     2013     2012  
     (Unaudited)     (Unaudited)  

Cash Flows from Operations:

    

Cash Received from Customers

   $ 2,008,847      $ 2,167,255   

Interest Received

     512        390   

Interest Paid

     (3,148     (400

Cash Paid for Operating Expenses

     (1,345,526     (1,055,484
  

 

 

   

 

 

 

Net Cash Provided by Operations

     660,685        1,111,761   

Cash Flows from Investing Activities:

    

Certificate of Deposit

     (138     (150,055

Letter of Credit Costs

     (12,234     (12,269

Purchase of Equipment

     (36,550     (20,007

Warehouse Renovation

     —          (44,945
  

 

 

   

 

 

 

Net Cash (Used) by Investing

     (48,922     (227,276

Cash Flows from Financing Activities

    

Excess Tax Benefit From Share Based Compensation

     1,200        40,300   
  

 

 

   

 

 

 

Net Increase in Cash

     612,963        924,785   

Cash at Beginning of Period

     2,336,814        2,000,367   
  

 

 

   

 

 

 

Cash at End of Period

   $ 2,949,777      $ 2,925,152   
  

 

 

   

 

 

 

Reconciliation of Net Income to Net Cash Provided by Operations:

    

Net Income

   $ 545,123      $ 533,184   

Adjustments to Reconcile Net Income to Cash Provided or Used:

    

Amortization

     8,574        8,580   

Depreciation

     334,613        249,840   

Loss on disposal of assets

     80        —     

Deferred Income Tax

     330,600        323,100   

Excess Tax Benefit From Share Based Compensation

     (1,200     (40,300

Share-Based Compensation

     18,141        20,246   

(Increase)/Decrease in Receivables

     (201,056     96,816   

(Increase)/Decrease in Other Receivables

     2,170        —     

(Increase)/Decrease in Prepaid Expenses

     (36,189     (28,662

(Increase)/Decrease in Equipment Deposit

     —          (50,059

Increase/(Decrease) in Payables

     (187,345     (21,205

Increase/(Decrease) in Accruals

     (152,826     20,221   
  

 

 

   

 

 

 

Net Cash Provided by Operations

   $ 660,685      $ 1,111,761   
  

 

 

   

 

 

 

Non-cash Financing Transactions:

    

Fair Value of Common Stock Issued Pursuant to Exercised Stock Options

   $ 4,260      $ 147,000   

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

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Table of Contents

Note A - Basis of Presentation

The accompanying financial statements of Food Technology Service, Inc. (the “Company,” “we” or “our”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in accordance with generally accepted accounting principles. These interim financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

In the opinion of management, these financial statements reflect all adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position as of June 30, 2013, and the results of operations and cash flows for the interim periods presented. Operating results for the period ended June 30, 2013, are not necessarily indicative of the results that may be expected for the full year. We have evaluated subsequent events for recognition or disclosure through the date this Form 10-Q is filed with the Securities and Exchange Commission.

Note B - Business Description and Summary of Significant Accounting Policies

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, oysters and meat products to enhance safety or eliminate insect pests.

1. 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.

2. Revenue Recognition

The primary source of revenue is from treating products with gamma radiation from Cobalt 60. 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.

3. Accounts Receivable and Allowances for Doubtful Accounts

Accounts receivable are customer obligations arising from the sale of services and are due under normal trade terms requiring payment within 30 days from the invoice date. Accounts over ninety days are monitored closely by Management and delinquencies are determined based on payment history, aging analysis and any specific known troubled assets. Receivables are charged off to the allowance for doubtful accounts once Management determines that they are uncollectible.

4. Property, Plant and Equipment

Property, plant and equipment are stated at cost. Before 2012, depreciation for assets other than cobalt has been computed on the straight-line method for both financial reporting and income tax purposes. Beginning in 2012, depreciation for assets other than cobalt has been computed on the straight-line method for financial reporting purposes and on the accelerated methods for income tax purposes for any new assets.

The useful lives of property, plant and equipment for purposes of computing depreciation are:

 

Building

   31.5-40 Years

Furniture and Equipment

   5-15 Years

 

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Table of Contents

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 accordingly.

Nordion is the Company’s supplier of Cobalt 60. When Cobalt is purchased, Nordion agrees to accept the return of all Cobalt 60 that has reached the end of its useful life for a fee. The Company’s facility has the capacity to store the Cobalt 60 and there is no regulatory or industry requirement stating when the Cobalt needs to be returned. Management periodically reviews the value of the Cobalt 60 and has determined an environmental remediation liability is not necessary since the value of the Cobalt 60 exceeds the disposal costs.

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 insured up to $250,000 per legal entity per financial institution and all funds in noninterest-bearing transaction accounts until December 31, 2012. As of January 1, 2013 noninterest-bearing transaction accounts no longer receive unlimited deposit insurance coverage. The Company’s uninsured balances totaled approximately $2,379,918 as of June 30, 2013 and $144,736 as of December 31, 2012.

7. Earnings Per Share

Basic earnings per share are computed using the weighted average number of common shares outstanding. Diluted earnings per share are computed by the weighted average number of common shares outstanding, plus the effect of common stock equivalents that are dilutive.

8. Fair Value of Financial Instruments

The carrying value of cash, accounts receivable, prepaid expenses, deposits, accounts payable and accrued liabilities approximate fair value.

9. 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 H - Stock Options) 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. FASB ASC 718 requires the benefits of tax deductions in excess of the compensation cost recognized for those options to be classified as financing cash inflows rather than operating cash inflows. This amount is shown as excess tax benefit from share based compensation on the statements of cash flows. The excess tax benefits from the expired options are recorded in additional paid-in capital and any tax benefits from stock options expired unexercised are offset to the extent of any remaining balance.

10. Advertising

The Company expenses all advertising costs when incurred. Advertising expense recognized for the three months ended June 30, 2013 and 2012 was $7,909 and $1,345, respectively, and for the six months ended June 30, 2013 and 2012 was $14,816 and $2,652, respectively.

 

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Table of Contents

11. Reclassification

Certain reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation.

Note C - Certificate of Deposit

Certificate of deposit totaling $150,307 bears interest of 0.10% that compounds quarterly and matures on November 4, 2014 with penalties for early withdrawal. Any penalties for early withdrawal would not have a material effect on the financial statements.

Note D - Loan Fees

During the first quarter of 2013, renewal fees in the amount of $12,269 were incurred in connection with the Regions letter of credit (See Note E - Letter and Line of Credit). As of June 30, 2013 and December 31, 2012, total loan fees were $20,821 and $20,856, respectively. These fees were amortized based on the life of the loans and written off upon completion. Amortization expense for the three months ended June 30, 2013 and 2012 was $3,264 and $3,272, respectively and for the six months ended June 30, 2013 and 2012 was $8,574 and $8,580, respectively.

Note E - Letter and Line of Credit

The State of Florida requires, as a condition of the Company’s Radioactive Materials License, a $600,000 irrevocable standby letter of credit. This letter of credit with Regions Bank was renewed at similar terms prior to its February 24, 2013 expiration to satisfy the state’s requirements. The letter of credit has an annual fee of $12,269 and is collateralized by the Company’s real estate and a $150,307 certificate of deposit.

The Company has a separate $400,000 line of credit with Regions Bank that is available for the short term capital needs of the Company. The line of credit is secured by the Company’s real estate and incurs interest at prime plus 1.35%. As of June 30, 2013, the Company has not used the line of credit.

Note F - Income Taxes and Available Tax Loss Carryforwards

The components of income tax / (benefit) are as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Current

           

Federal

   $ —         $ —         $ —         $ —     

State

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Current

     —           —           —           —     

Deferred-Benefit

           

Federal

     146,000         134,300         282,300         275,900   

State

     25,100         23,000         48,300         47,200   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Deferred-Benefit

     171,100         157,300         330,600         323,100   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Income Tax Expense/(Benefit)

   $ 171,100       $ 157,300       $ 330,600       $ 323,100   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Income taxes differ from the amounts computed by applying the effective income tax rates of 37.63% to income before income taxes as a result of the following:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Expected Provision at US Statutory Rate

   $ 154,000       $ 141,700       $ 297,800       $ 291,200   

State Income Tax Net of Federal Benefit

     16,500         15,100         31,900         31,100   

Nondeductible Expenses

     600         500         900         800   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income Tax Expense / (Benefit)

   $ 171,100       $ 157,300       $ 330,600       $ 323,100   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company had income tax net operating loss (“NOL”) carryforwards for federal income tax purposes. The NOL will expire in various years ending through the year 2030.

The Company’s NOL carryforward is as follows:

 

     As of June 30,
2013
    As of December 31,
2012
 
     Federal     State     Federal     State  

NOL Carryforward - Beginning Of Period

     1,605,865        1,108,671        2,071,925        2,071,925   

Less Used

     (897,104     (870,252     (466,060     (963,254
  

 

 

   

 

 

   

 

 

   

 

 

 

NOL Carryfoward - End Of Period

     708,761        238,419        1,605,865        1,108,671   
  

 

 

   

 

 

   

 

 

   

 

 

 

The components of the Company’s deferred tax assets and (liabilities) are as follows:

 

     As of June 30,
2013
    As of December 31,
2012
 
     Current      Noncurrent     Current      Noncurrent  

NOL Carryforward

   $ 184,700       $ 56,000      $ 521,000       $ 56,000   

Accrued Liabilities

     —           19,500        —           19,500   

Share-Based Compensation

     —           43,000        —           38,500   

Property, Plant & Equipment

     —           (239,000     —           (239,400
  

 

 

    

 

 

   

 

 

    

 

 

 

Net Deferred Tax Asset/(Liability)

   $ 184,700       $ (120,500   $ 521,000       $ (125,400
  

 

 

    

 

 

   

 

 

    

 

 

 

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

As of June 30, 2013, no further changes to the valuation allowance have been made. The Company believes that its estimate of future operations is conservative and reasonable, but inherently uncertain. 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.

The Company’s tax years 2009 through 2012 remain open to examination by taxing jurisdictions.

Note G - Accrued Liabilities

Effective January 1, 2011, the Board of Directors modified the President’s employment contract to include a resignation clause. This clause provides two weeks base pay for every full year worked for the company, if a six month notice is received before the President leaves. As of June 30, 2013, an accrual of $51,700 is recorded in relation to the resignation clause.

 

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Table of Contents

Note H - 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. Options outstanding under this plan as of June 30, 2013 and 2012 are 0 and 8,500, respectively.

No further options are being issued under the 1999 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. Options granted and outstanding under this plan are as follows:

 

Year

   Granted      Outstanding  

Before 2011

     23,000         17,000   

2011

     10,000         10,000   

2012

     10,000         10,000   
  

 

 

    

 

 

 
     43,000         37,000   
  

 

 

    

 

 

 

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.

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.

In 2003 and 2008 the company reached the maximum number of stock options allowed to be issued under the respective current stock option plan. The company therefore issued 60,000 stock options outside of aforementioned plans. Options outstanding outside a specific plan as of June 30, 2013 and 2012 are 60,000 and 65,000, respectively.

A summary of the status of the Company’s stock options is as follows:

 

     Number of
Shares
    Wtd. Avg.
Exercise
Price
     Wtd. Avg.
Remaining
Contractual
Life (Yrs)

Outstanding At December 31, 2012

     105,500      $ 2.10       4.50

Granted

     —        $ —        

Exercised

     (1,500   $ 2.18      

Expired/Forfeited

     (7,000   $ 2.18      
  

 

 

      

Outstanding At June 30, 2013

     97,000      $ 2.09       4.37
  

 

 

      

Vested/Exercisable At June 30, 2013

     85,000      $ 2.25       4.21
  

 

 

      

 

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A summary of the status of the Company’s nonvested stock options is as follows:

 

     Number of
Shares
     Wtd. Avg.
Grant Date
Fair Value
 

Nonvested, At December 31, 2012

     12,000       $ 0.28   

Granted

     —         $ —     

Vested

     —         $ —     
  

 

 

    

Nonvested, At June 30, 2013

     12,000       $ 0.28   
  

 

 

    

Expired/Forfeited During Period

     7,000       $ 0.75   
  

 

 

    

The Company estimated the fair value at the date of grant using the Black Scholes option valuation model with the following assumptions:

 

    

Six Months Ended

June 30,

     2013    2012

Risk Free Interest Rate

   0.76-1.39%    0.75-1.04%

Expected Volatility

   75.47-76.59%    80.06-80.13%

Expected Life

   5 years    5 years

Dividend Yield

   0.00%    0.00%

Option valuation models require the input of highly subjective assumptions including the expected option life. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For the three months ended June 30, 2013 and 2012, 1,500 and 7,000 stock options were exercised under a cashless program resulting in the issuance of 848 and 4,381 shares and an excess tax benefit of $1,200 and $7,300, respectively. For the six months ended June 30, 2013 and 2012, 1,500 and 34,500 stock options were exercised under a cashless program resulting in the issuance of 848 and 21,870 shares and an excess tax benefit of $1,200 and $40,300, respectively.

The Company recognized $6,563 and $10,304 stock-based compensation expense for the three months ended June 30, 2013 and 2012, respectively and $18,141 and $20,246 for the six months ended June 30, 2013 and 2012, respectively.

As of June 30, 2013, there was $1,663 of unrecognized compensation costs related to non-vested stock options, which will be amortized to expense over future periods. The Company expects to recognize that cost over the weighted average vesting period of 0.5 years.

Note I - Earnings Per Share

Earnings per share are calculated in accordance with ASC 260-10, “Earnings Per Share”. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the years. Diluted earnings per share reflect 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.

 

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The following table sets forth the computation of basic and diluted per share information:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Numerator:

           

Net Income

   $ 281,349       $ 259,330       $ 545,123       $ 533,184   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Wtd. Avg. Common Shares Outstanding

     2,835,870         2,826,801         2,835,662         2,815,327   

Dilutive Effect Of Stock Options

     87,000         112,000         87,000         112,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Wtd. Avg. Common Shares Outstanding, Assuming Dilution

     2,922,870         2,938,801         2,922,662         2,927,327   
  

 

 

    

 

 

    

 

 

    

 

 

 

Out of the money options excluded from the computation of diluted EPS:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Stock option with exercise price of $6.26

     10,000         —           10,000         —     

Note J - Concentration and Credit Risk

Although the Company continues to diversify its customer base it does a significant amount of its total business with the following customers.

 

     Three Months Ended
June 30,
  Six Months Ended
June 30,
     2013   2012   2013   2012

Customer 1

   36%   31%   33%   31%

Customer 2

   21%   29%   23%   31%
  

 

 

 

 

 

 

 

Total

   57%   60%   56%   62%
  

 

 

 

 

 

 

 

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.

The Company’s supplier of Cobalt 60 is Nordion (Canada) Inc. In the event it is unavailable from Nordion the Company can obtain Cobalt 60 from one other source.

Note K - Subsequent Events

We have evaluated subsequent events for recognition or disclosure in these financial statements through the date of issuance, and determined there are no material transactions to recognize or disclose.

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Food Technology Service, Inc. had revenues of $1,136,748 during the second quarter of 2013 compared to revenues of $1,019,823 for the same period in 2012. This is an increase of approximately 11.5 percent. The Company had net income during the second quarter of 2013 of $281,349 versus net income of $259,330 during the same period in 2012, an increase of approximately 8.5 percent.

For the first half of 2013, the Company had revenues of $2,209,903 and net income of $545,123. Revenues during the first half of 2012 were $2,070,439 and the Company had net income of $533,184. Revenues increased by about 6.7 percent and net income increased by approximately 2.2 percent in the first half of 2013 compared to the same period in 2012.

Management attributes increased revenue to continued growth in customer demand.

During the second quarter of 2013, processing costs as a percentage of sales when compared to the second quarter of 2012 decreased slightly from 16.3 percent to 15.3 percent. These costs are relatively fixed and the slight decrease reflects increased revenue. General, administrative and development costs as a percentage of sales during the second quarter of 2013 were 30 percent compared to 30.5 percent in the second quarter of 2012. Again these costs are relatively fixed and the decrease is not significant.

During the first half of 2013, processing costs as a percentage of sales were 15.3 percent. This compares to 16 percent in the first half of 2012. Again, these costs are relatively fixed and the decrease is attributable to increased revenue. General, administrative and development costs as a percentage of sales were 29.6 percent during the first half of 2013. This compares to 30.2 percent during the first half of 2012. This decrease is not significant and reflects the fixed nature of these costs and the increase in revenue.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

 

Item 4T. Controls and Procedures

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.

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 by our Chief Executive Officer who also acts as the Company’s Chief Financial Officer. Based upon that evaluation, our Chief Executive/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.

In accordance with Rule 13a-15 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934 (the “Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2013, by using 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 June 30, 2013, the Company’s internal controls over financial reporting is effective.

 

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Table of Contents

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 II: OTHER INFORMATION

 

Item 1. Legal Proceedings

The company is not involved in any legal proceedings.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

 

Item 3. Defaults upon Senior Securities

Not applicable

 

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable

 

Item 5. Other Information

Not applicable

 

Item 6. Exhibits

 

Number

  

Description

  31    Certifications of Officers pursuant to Rule 13a-14(a)/15d-14(a)
  32    Certifications of Officers pursuant to Section 1350, of the Sarbanes - Oxley Act of 2002
101.INS    XBRL Instance Document
101.SCH    XBRL Schema Document
101.CAL    XBRL Calculation Linkbase Document
101.DEF    XBRL Definition Linkbase
101.LAB    XBRL Label Linkbase Document
101.PRE    XBRL Presentation Linkbase Document

 

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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.

 

FOOD TECHNOLOGY SERVICE, INC.
By:  

/s/ Richard G. Hunter, Ph.D.

  Richard G. Hunter, Ph.D.
 

Chief Executive Officer and

Chief Financial and Accounting Officer

Date: August 12, 2013

 

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