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 September 30, 2012
¨ | 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
(Registrants 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 2,830,297 shares of the Registrants common stock, $.01 par value per share, issued and outstanding as of October 25, 2012.
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Item 1 |
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Balance Sheets As of September 30, 2012 and December 31, 2011 |
3 | |||||
Statements of Operations For the Three Months Ended September 30, 2012 and 2011 |
5 | |||||
Statements of Operations For the Nine Months Ended September 30, 2012 and 2011 |
6 | |||||
Statements of Cash Flows For the Nine Months Ended September 30, 2012 and 2011 |
7 | |||||
8 | ||||||
Item 2 |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
16 | ||||
Item 3 |
16 | |||||
Item 4T |
16 | |||||
Item 1 |
18 | |||||
Item 2 |
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Item 3 |
18 | |||||
Item 4 |
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Item 5 |
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Item 6 |
18 | |||||
BALANCE SHEETS
As of September 30, | As of December 31, | |||||||
2012 | 2011 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current Assets: |
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Cash |
$ | 2,201,706 | $ | 2,000,367 | ||||
Certificate of Deposit, Restricted |
150,112 | | ||||||
Accounts Receivable, Less Allowance for Doubtful Accounts of $5,000 |
461,544 | 511,448 | ||||||
Prepaid Expenses |
39,936 | 28,467 | ||||||
Deferred Tax Asset |
377,100 | 651,000 | ||||||
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Total Current Assets |
3,230,398 | 3,191,282 | ||||||
Property, Plant and Equipment: |
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Buildings |
3,488,668 | 3,443,723 | ||||||
Cobalt |
6,799,382 | 5,900,977 | ||||||
Furniture and Equipment |
2,096,487 | 2,076,481 | ||||||
Land |
171,654 | 171,654 | ||||||
Less: Accumulated Depreciation |
(7,230,634 | ) | (6,830,734 | ) | ||||
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Total Property, Plant and Equipment |
5,325,557 | 4,762,101 | ||||||
Other Assets: |
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Equipment Deposit |
393,968 | | ||||||
Deferred Tax Asset |
51,700 | 185,400 | ||||||
Utility Deposits |
5,000 | 5,000 | ||||||
Loan Fees Net |
7,463 | 7,046 | ||||||
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Total Other Assets |
458,131 | 197,446 | ||||||
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Total Assets |
$ | 9,014,086 | $ | 8,150,829 | ||||
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
FOOD TECHNOLOGY SERVICE, INC.
BALANCE SHEETS
As of September 30, | As of December 31, | |||||||
2012 | 2011 | |||||||
(Unaudited) | (Audited) | |||||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current Liabilities: |
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Accounts Payable |
$ | 24,058 | $ | 32,002 | ||||
Accrued Liabilities |
127,006 | 68,242 | ||||||
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Total Current Liabilities |
151,064 | 100,244 | ||||||
Stockholders Equity: |
||||||||
Common Stock $.01 Par Value, Authorized 5,000,000 Shares, Issued 2,827,980 and 2,805,172, respectively |
28,279 | 28,051 | ||||||
Paid-In Capital |
12,347,756 | 12,275,218 | ||||||
Deficit |
(3,494,522 | ) | (4,234,193 | ) | ||||
Less, 5,154 Treasury Shares at Cost |
(18,491 | ) | (18,491 | ) | ||||
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Total Stockholders Equity |
8,863,022 | 8,050,585 | ||||||
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Total Liabilities and Stockholders Equity |
$ | 9,014,086 | $ | 8,150,829 | ||||
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
STATEMENTS OF OPERATIONS
Three Months Ended September 30, |
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2012 | 2011 | |||||||
(Unaudited) | (Unaudited) | |||||||
Net Revenues |
$ | 925,654 | $ | 1,011,650 | ||||
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Costs and Operating Expenses |
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Processing Costs |
148,413 | 167,918 | ||||||
Selling, General and Administrative |
292,442 | 294,703 | ||||||
Depreciation and Amortization |
153,332 | 132,419 | ||||||
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Total Costs and Operating Expenses |
594,187 | 595,040 | ||||||
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Income from Operations |
331,467 | 416,610 | ||||||
Interest Income |
220 | 215 | ||||||
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Income before Income Taxes |
331,687 | 416,825 | ||||||
Income Tax (Expense) Benefit - Deferred |
(125,200 | ) | (157,200 | ) | ||||
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Net Income |
$ | 206,487 | $ | 259,625 | ||||
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Net Income Per Common Share |
||||||||
-Basic |
$ | 0.073 | $ | 0.093 | ||||
-Diluted |
$ | 0.070 | $ | 0.089 | ||||
Weighted Average Number of Common Shares |
||||||||
Used in Computation |
||||||||
-Basic |
2,827,042 | 2,787,182 | ||||||
-Diluted |
2,937,542 | 2,926,682 |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
STATEMENTS OF OPERATIONS
Nine Months Ended September 30, |
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2012 | 2011 | |||||||
(Unaudited) | (Unaudited) | |||||||
Net Revenues |
$ | 2,996,094 | $ | 2,782,249 | ||||
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Costs and Operating Expenses |
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Processing Costs |
480,263 | 457,790 | ||||||
Selling, General and Administrative |
916,719 | 885,271 | ||||||
Depreciation and Amortization |
411,751 | 354,467 | ||||||
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Total Costs and Operating Expenses |
1,808,733 | 1,697,528 | ||||||
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Income from Operations |
1,187,361 | 1,084,721 | ||||||
Interest Income |
610 | 792 | ||||||
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Income before Income Taxes |
1,187,971 | 1,085,513 | ||||||
Income Tax (Expense) Benefit - Deferred |
(448,300 | ) | (385,500 | ) | ||||
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Net Income |
$ | 739,671 | $ | 700,013 | ||||
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Net Income Per Common Share |
||||||||
-Basic |
$ | 0.263 | $ | 0.253 | ||||
-Diluted |
$ | 0.253 | $ | 0.241 | ||||
Weighted Average Number of Common Shares |
||||||||
Used in Computation |
||||||||
-Basic |
2,817,790 | 2,766,812 | ||||||
-Diluted |
2,928,290 | 2,906,312 |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, |
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2012 | 2011 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash Flows from Operations: |
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Cash Received from Customers |
$ | 3,045,998 | $ | 2,689,710 | ||||
Interest Received |
610 | 792 | ||||||
Interest Paid |
(482 | ) | (253 | ) | ||||
Cash Paid for Operating Expenses |
(1,367,082 | ) | (1,235,486 | ) | ||||
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Net Cash Provided by Operations |
1,679,044 | 1,454,763 | ||||||
Cash Flows from Investing Activities: |
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Certificate of Deposit |
(150,112 | ) | | |||||
Letter of Credit Costs |
(12,269 | ) | (12,218 | ) | ||||
Purchase of Cobalt, Delivery & Installation |
(898,405 | ) | (901,717 | ) | ||||
Purchase of Equipment |
(20,006 | ) | (64,008 | ) | ||||
Equipment Deposit |
(393,968 | ) | | |||||
Warehouse Renovation |
(44,945 | ) | (73,814 | ) | ||||
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Net Cash (Used) by Investing |
(1,519,705 | ) | (1,051,757 | ) | ||||
Cash Flows from Financing Activities: |
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Excess Tax Benefit From Share Based Compensation |
42,000 | | ||||||
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Net Increase in Cash |
201,339 | 403,006 | ||||||
Cash at Beginning of Period |
2,000,367 | 1,294,540 | ||||||
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Cash at End of Period |
$ | 2,201,706 | $ | 1,697,546 | ||||
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Reconciliation of Net Income to Net Cash Provided by Operations: |
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Net Income |
$ | 739,671 | $ | 700,013 | ||||
Adjustments to Reconcile Net Income to Cash Provided or Used: |
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Amortization |
11,851 | 16,867 | ||||||
Deferred Income Tax |
448,300 | 385,500 | ||||||
Excess Tax Benefit From Share Based Compensation |
(42,000 | ) | | |||||
Depreciation |
399,900 | 337,601 | ||||||
Share-Based Compensation |
32,067 | 38,572 | ||||||
(Increase)/Decrease in Receivables |
49,904 | (92,539 | ) | |||||
(Increase)/Decrease in Other Receivables |
| (7,428 | ) | |||||
(Increase)/Decrease in Prepaid Expenses |
(11,469 | ) | (31,230 | ) | ||||
Increase/(Decrease) in Payables |
(7,944 | ) | 18,893 | |||||
Increase/(Decrease) in Accruals |
58,764 | 88,514 | ||||||
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Net Cash Provided by Operations |
$ | 1,679,044 | $ | 1,454,763 | ||||
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Non-cash Financing Transactions: |
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Fair Value of Common Stock Issued Pursuant to Exercised Stock Options |
$ | 153,315 | $ | 308,956 |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
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 Companys Annual Report on Form 10-K for the year ended December 31, 2011.
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 September 30, 2012, and the results of operations and cash flows for the interim periods presented. Operating results for the period ended September 30, 2012, 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 Companys performance obligation is completed and product has been processed in accordance with the customers 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. Assets other than Cobalt have been depreciated using the straight-line method over the following lives for both financial statement and tax purposes:
Building |
31.5-40 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.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
Estimated useful lives are periodically reviewed and if warranted, changes will be made accordingly.
Nordion is the Companys 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 Companys 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 insures up to $250,000 per legal entity per financial institution and all funds in noninterest-bearing transaction accounts until December 31, 2012. The Companys uninsured balances totaled approximately $144,653 as of September 30, 2012 and none as of December 31, 2011.
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 I - 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 September 30, 2012 and 2011 were $2,675 and $799, respectively and for the nine months ended September 30, 2012 and 2011 were $5,327 and $4,363 respectively.
11. Reclassification
Certain reclassifications have been made to the prior years financial statements to conform to the current years presentation.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
Note C - Certificate of Deposit
Certificate of deposit totaling $150,112 bears interest of .15% that compounds quarterly and matures on June 23, 2013 with penalties for early withdrawal. Any penalties for early withdrawal would not have a material effect on the financial statements.
Note D Equipment Deposit
As of September 30, 2012 the company has paid $393,968 towards the replacement of the Programmable Logic Control (PLC) system expected to be placed in service by the end of the year. See Note L - Commitments and Contingencies for further details.
Note E - Loan Fees
During the first quarter of 2012, renewal fees in the amount of $12,269 were incurred in connection with the Regions letter of credit (See Note F - Letter and Line of Credit). As of September 30, 2012 and December 31, 2011, total loan fees were $20,856 and $34,972, respectively. These fees were amortized based on the life of the loans and written off upon completion. Amortization expense for the three months ended September 30, 2012 and 2011 were $3,272 and $3,261, respectively and for the nine months ended September 30, 2012 and 2011 were $11,851 and $16,867, respectively.
Note F - Letter and Line of Credit
The State of Florida requires as a condition of the Companys Radioactive Materials License a $600,000 irrevocable standby letter of credit. On February 24, 2012, the Company renewed the $600,000 letter of credit with Regions Bank to satisfy the State of Florida requirements. The letter of credit expires on February 24, 2013, has an annual fee of $12,269 and is collateralized by the Companys real estate and a $150,112 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 Companys real estate and incurs interest at prime plus 1.35%. As of September 30, 2012, the Company has not used the line of credit.
Note G - Income Taxes and Available Tax Loss Carryforwards
The components of income tax / (benefit) are as follows:
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Current |
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Federal |
$ | | $ | | $ | | $ | | ||||||||
State |
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Deferred-Benefit |
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Federal |
106,900 | 134,200 | 382,800 | 329,200 | ||||||||||||
State |
18,300 | 23,000 | 65,500 | 56,300 | ||||||||||||
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125,200 | 157,200 | 448,300 | 385,500 | |||||||||||||
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Total Income Tax Expense /(Benefit) |
$ | 125,200 | $ | 157,200 | $ | 448,300 | $ | 385,500 | ||||||||
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
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 September 30, |
Nine Months Ended September 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Expected Provision at US Statutory Rate |
$ | 112,800 | $ | 141,700 | $ | 403,900 | $ | 369,100 | ||||||||
State Income Tax Net of Federal Benefit |
12,000 | 15,100 | 43,200 | 39,400 | ||||||||||||
Nondeductible Expenses |
400 | 400 | 1,200 | 1,500 | ||||||||||||
Change in Estimates and Available NOL Carryforwards |
| | | 1,000 | ||||||||||||
Change in Valuation Allowance |
| | | (25,500 | ) | |||||||||||
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Income Tax Expense / (Benefit) |
$ | 125,200 | $ | 157,200 | $ | 448,300 | $ | 385,500 | ||||||||
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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 Companys NOL carryforward is as follows:
September 30, 2012 | December 31, 2011 | |||||||
NOL Carryforward - Beginning of Period |
$ | 2,071,925 | $ | 3,672,530 | ||||
Less Used |
(1,069,871 | ) | (1,600,605 | ) | ||||
Less Expired |
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NOL Carryfoward - End of Period |
$ | 1,002,054 | $ | 2,071,925 | ||||
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The components of the Companys deferred tax assets are as follows:
September 30, 2012 | December 31, 2011 | |||||||
NOL Carryforward |
$ | 377,100 | $ | 779,700 | ||||
Accrued Liabilities |
17,700 | 17,700 | ||||||
Stock Options |
34,000 | 39,000 | ||||||
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Net Deferred Tax Asset |
$ | 428,800 | $ | 836,400 | ||||
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Current Portion |
$ | 377,100 | $ | 651,000 | ||||
Noncurrent Portion |
51,700 | 185,400 | ||||||
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Total Net Deferred Tax Asset |
$ | 428,800 | $ | 836,400 | ||||
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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.
During 2011, as a result of the continuing diversification and growth in customer base, ongoing profits from operations and the Companys 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 all of the Companys deferred asset. As of September 30, 2012, 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 Companys tax years 2009 through 2011 remain open to examination by taxing jurisdictions.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
Note H - Accrued Liabilities
Effective January 1, 2011, the Board of Directors modified the Presidents 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 September 30, 2012, an accrual of $47,000 is recorded in relation to the resignation clause.
Note I - 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 September 30, 2012 and 2011 are 8,500 and 21,500, respectively.
No further options are being issued under the 1999 Plan.
On September 23, 2000, the Stockholders approved the 2000 Incentive and Non-Statutory Stock Option Plan (the 2000 Plan).
The 2000 Plan was administered by the Board of Directors who was authorized to grant incentive stock options (ISOs) to Officers and employees of the Company and non-qualified options (NQOs) for certain other individuals providing services to or serving as Directors of the Company.
The maximum number of shares of the Companys Stock that may be issued under the 2000 Plan is 125,000 shares. Options outstanding under this plan as of September 30, 2012 and 2011 are none and 20,000, respectively.
The ISOs are exercisable 20% of the authorized amount immediately and 20% in each of the following four years. ISOs granted to an optionee terminate 30 to 90 days after termination of employment or other relationship, except that ISOs 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 (ISOs) to Officers and employees of the Company and non-qualified options (NQOs) for certain other individuals providing services to or serving as Directors of the Company
The maximum number of shares of the Companys 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 | ||||||
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43,000 | 37,000 | |||||||
|
|
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
The aggregate fair market value (determined at the time an ISO is granted) of the Common Stock with respect to which ISOs are exercisable for the first time by any person during any calendar year under the Plans shall not exceed $100,000.
The ISOs are exercisable 20% of the authorized amount immediately and 20% in each of the following four years. ISOs granted to an optionee terminate 30 to 90 days after termination of employment or other relationship, except that ISOs 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 65,000 stock options outside of aforementioned plans. Options outstanding outside a specific plan as of September 30, 2012 and 2011 are 65,000 and 65,000, respectively.
A summary of the status of the Companys stock options is as follows:
Number of Shares |
Wtd. Avg. Exercise Price |
Wtd. Avg. Remaining Contractual Life (Yrs) |
||||||||||
Outstanding At December 31, 2011 |
139,500 | $ | 1.95 | 4.02 | ||||||||
Granted |
10,000 | $ | 6.26 | |||||||||
Exercised |
(36,000 | ) | $ | 2.43 | ||||||||
Expired/Forfeited |
(3,000 | ) | $ | 2.52 | ||||||||
|
|
|||||||||||
Outstanding At September 30, 2012 |
110,500 | $ | 2.17 | 4.13 | ||||||||
|
|
|||||||||||
Vested/Exercisable At September 30, 2012 |
86,500 | $ | 2.50 | 3.54 | ||||||||
|
|
A summary of the status of the Companys nonvested stock options is as follows:
Number of Shares |
Wtd. Avg. Grant Date Fair Value |
|||||||
Nonvested, At December 31, 2011 |
28,000 | $ | 0.41 | |||||
Granted |
10,000 | $ | 4.36 | |||||
Vested |
(14,000 | ) | $ | 3.45 | ||||
|
|
|||||||
Nonvested, At September 30, 2012 |
24,000 | $ | 0.28 | |||||
|
|
|||||||
Expired/Forfeited During Period |
3,000 | $ | 1.16 | |||||
|
|
The Company estimated the fair value at the date of grant using the Black Scholes option valuation model with the following assumptions:
Nine Months Ended September 30, | ||||
2012 | 2011 | |||
Risk Free Interest Rate |
0.62-1.04% | 1.85-2.24% | ||
Expected Volatility |
80.06-80.25% | 84.49-84.66% | ||
Expected Life |
5 years | 5 years | ||
Dividend Yield |
0% | 0% |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
13
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
Option valuation models require the input of highly subjective assumptions including the expected option life. Because the Companys 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 September 30, 2012, 1,500 stock options were exercised under a cashless program resulting in the issuance of 938 shares and an excess tax benefit of $1,700. For the nine months ended September 30, 2012, 36,000 stock options were exercised under a cashless program resulting in the issuance of 22,808 shares and an excess tax benefit of $42,000.
For the three months ended September 30, 2012 there were no expired stock options. For the nine months ended September 30, 2012, 3,000 unexercised expired stock options created a $1,300 tax benefit that has been charged against paid-in capital from excess tax benefits.
The Company recognized $11,821 and $14,106 stock-based compensation expense for the three months ended September 30, 2012 and 2011, respectively and $32,067 and $38,572 for the nine months ended September 30, 2012 and 2011, respectively.
As of September 30, 2012, there was $31,626 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 1.25 years.
Note J - Related Party Transactions
The Companys supplier of Cobalt, Nordion (Canada) Inc., formerly MDS Nordion, owned approximately 16.8% of the Companys outstanding common stock. By agreement entered into February 10, 2011, Nordion (Canada) Inc., formerly MDS Nordion, sold 463,317 shares of common stock to Fort Ashford Holdings, LLC for $3.60 per share. As of February 25, 2011, the closing date for the sale, Nordion (Canada) ceased to be a shareholder and no longer has any direct or indirect interest in the outstanding shares of common stock of the Company.
The Company has recently purchased the following Cobalt from Nordion:
Year |
Curies | Amount | ||||||
2010 |
105,757 | $ | 81,740 | |||||
2011 |
499,998 | $ | 1,414,694 | |||||
2012 |
299,996 | $ | 898,405 |
Note K - 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 Companys Statements of Operations.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
The following table sets forth the computation of basic and diluted per share information:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Numerator: |
||||||||||||||||
Net Income |
$ | 206,487 | $ | 259,625 | $ | 739,671 | $ | 700,013 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Wtd. Avg. Common Shares Outstanding |
2,827,042 | 2,787,182 | 2,817,790 | 2,766,812 | ||||||||||||
Dilutive Effect Of Stock Options |
110,500 | 139,500 | 110,500 | 139,500 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Wtd. Avg. Common Shares Outstanding, Assuming Dilution |
2,937,542 | 2,926,682 | 2,928,290 | 2,906,312 | ||||||||||||
|
|
|
|
|
|
|
|
For the three months and nine months ended September 30, 2012 and 2011, there were no out of the money options to exclude from the computation of diluted EPS.
Note L Commitments and Contingencies
In March 2012, the Company entered into an agreement with Nordion for the replacement of the Programmable Logic Control (PLC) system at an estimated cost of $800,000. This is the last part of a multi-year project intended to maintain the facility in good and reliable condition. The PLC replacement will take place in two phases and is expected to be substantially completed by the end of 2012. As of September 30, 2012, the company has paid $393,968 toward the completion of this project.
Note M - 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 September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Customer 1 |
30 | 29 | 31 | 39 | ||||||||||||
Customer 2 |
24 | 31 | 29 | 21 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
54 | % | 60 | % | 60 | % | 60 | % | ||||||||
|
|
|
|
|
|
|
|
The Companys 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 Companys 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 N - 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.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
15
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Food Technology Service, Inc. had revenues of $925,654 during the third quarter of 2012 compared to revenues of $1,011,650 for the same period in 2011. This is a decrease of approximately 8.5 percent. The Company had income before taxes during the third quarter of 2012 of $331,687 compared to income before taxes of $416,825 during the third quarter of 2011. This is a decrease of approximately 20.4 percent. For the first nine months of 2012, the Company had revenues of $2,996,094 and income before taxes of $1,187,971. Revenues during the first nine months of 2011 were $2,782,249 and the Company had income before taxes of $1,085,513. Revenues increased by about 7.7 percent and income before taxes increased by approximately 9.4 percent in the nine months of 2012 compared to the same period in 2011.
The Companys statement of operations reflects non-cash deferred income tax expense for the third quarter of 2012 in the amount of $125,200. This resulted in net income during the third quarter of 2012 of $206,487 versus net income of $259,625 during the same period in 2011, a decrease of 20.5 percent. Similarly, the Companys statement of operations reflects non-cash deferred income tax expense for the first nine months of 2012 in the amount of $448,300. This resulted in net income of $739,671 during the first nine months of 2012 versus $700,013 during the same period of 2011. This is an increase of approximately 5.7 percent. Management attributes the decrease in revenue experienced in the third quarter to a lessened demand by a medical customer. Management believes this issue was largely confined to one month in the third quarter and does not represent a longer term decrease in their demand.
During the third quarter of 2012, processing costs as a percentage of sales were 16 percent compared to 16.6 percent during the third quarter of 2011. These costs are relatively fixed and the slight decrease in 2012 is not significant. General, administrative and development costs as a percentage of sales during the third quarter of 2012 were 31.6 percent. This compares to 29.1 percent in the third quarter of 2011. These costs are also relatively fixed and the increase in general, administrative and development expenses, as a percentage of sales, is due to the decrease in revenue in 2012.
During the first nine months of 2012, processing costs as a percentage of sales were 16 percent compared to 16.5 percent in the first nine months of 2011. Again, these costs are relatively fixed and the variation is not significant. General, administrative and development costs as a percentage of sales were 30.6 percent during the first none months of 2012. This compares to 31.8 percent during the first nine months of 2011. As previously mentioned, these costs are relatively fixed and the decline in general, administrative and development expenses, as a percentage of sales, is primarily due to increased revenue in 2012.
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 Companys internal control system was designed to provide reasonable assurance to the Companys 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 Companys 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.
16
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 Commissions 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 issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Companys management assessed the effectiveness of the Companys internal control over financial reporting as of September 30, 2012, 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 September 30, 2012, the Companys internal controls over financial reporting is effective.
There have been no changes in the Companys internal control over financial reporting that occurred during the Companys last fiscal quarter that materially affected, or are reasonably likely to materially affect the Companys internal control over financial reporting.
17
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.LAB | XBRL Label Linkbase Document | |
101.PRE | XBRL Presentation Linkbase Document |
18
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 Officer |
Date: November 12, 2012
19
EXHIBIT 31
CERTIFICATIONS OF OFFICERS PURSUANT
TO RULE 13A-14(A)/15D-14(A)
I, Richard G. Hunter, Ph.D., certify that:
1) | I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2012 of Food Technology Service, Inc.; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4) | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5) | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
FOOD TECHNOLOGY SERVICE, INC. | ||
By: | /s/ Richard G. Hunter, Ph.D. | |
Richard G. Hunter, Ph.D. | ||
Chief Executive Officer and | ||
Chief Financial Officer |
Date: November 12, 2012
EXHIBIT 32
CERTIFICATIONS OF OFFICERS PURSUANT TO SECTION 1350,
OF THE SARBANES - OXLEY ACT OF 2002
In connection with the quarterly report of Food Technology Service, Inc. (the Company) on Form 10-Q for the quarter ending September 30, 2012 as filed with the Securities and Exchange Commission (the Report), I, Richard G. Hunter, Chief Executive and Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) | The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company at the end of, and for, this period covered by the Report. |
FOOD TECHNOLOGY SERVICE, INC. | ||
By: | /s/ Richard G. Hunter, Ph.D. | |
Richard G. Hunter, Ph.D. | ||
Chief Executive Officer and | ||
Chief Financial Officer |
Date: November 12, 2012
Stock Options (Details)
|
3 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2012
|
Sep. 30, 2012
|
Dec. 31, 2011
|
Dec. 31, 2009
|
|
Stock options granted and outstanding | ||||
Stock options granted | 10,000 | |||
Total stock option outstanding | 110,500 | 139,500 | ||
2009 Plan [Member]
|
||||
Stock options granted and outstanding | ||||
Stock options granted | 10,000 | 43,000 | 10,000 | 23,000 |
Total stock option outstanding | 10,000 | 37,000 | 10,000 | 17,000 |
Commitments and Contingencies (Details) (USD $)
|
1 Months Ended | |
---|---|---|
Sep. 30, 2012
|
Mar. 31, 2012
Nordion [Member]
Programmable Logic Control PLC System [Member]
|
|
Commitments and Contingencies (Textual) [Abstract] | ||
Agreement with Nordion for the replacement | $ 800,000 | |
Cost incurred for the completion of project | $ 393,968 |
Earnings Per Share (Details) (USD $)
|
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 30, 2012
|
Sep. 30, 2011
|
|
Computation of basic and diluted per share | ||||
Net Income | $ 206,487 | $ 259,625 | $ 739,671 | $ 700,013 |
Wtd. Avg.Common Shares Outstanding | 2,827,042 | 2,787,182 | 2,817,790 | 2,766,812 |
Dilutive Effect Of Stock Options | 110,500 | 139,500 | 110,500 | 139,500 |
Wtd. Avg. Common Shares Outstanding, Assuming Dilution | 2,937,542 | 2,926,682 | 2,928,290 | 2,906,312 |
Income Taxes and Available Tax Loss Carryforwards (Details) (USD $)
|
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 30, 2012
|
Sep. 30, 2011
|
|
Current | ||||
Federal | ||||
State | ||||
Total | ||||
Deferred-Benefit | ||||
Federal | 106,900 | 134,200 | 382,800 | 329,200 |
State | 18,300 | 23,000 | 65,500 | 56,300 |
Total | 125,200 | 157,200 | 448,300 | 385,500 |
Income Tax Expense / (Benefit) | $ 125,200 | $ 157,200 | $ 448,300 | $ 385,500 |
Earnings Per Share (Tables)
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of basic and diluted per share |
The following table sets forth the computation of basic and diluted per share information:
|
Stock Options (Details 3)
|
9 Months Ended | |
---|---|---|
Sep. 30, 2012
|
Sep. 30, 2011
|
|
Estimated fair value using the Black Scholes option valuation model | ||
Risk Free Interest Rate, Minimum | 0.62% | 1.85% |
Risk Free Interest Rate, Maximum | 1.04% | 2.24% |
Expected Volatility, Minimum | 80.06% | 84.49% |
Expected Volatility, Maximum | 80.25% | 84.66% |
Expected Life | 5 years | 5 years |
Dividend Yield | 0.00% | 0.00% |
Income Taxes and Available Tax Loss Carryforwards (Details Textual) (USD $)
|
9 Months Ended |
---|---|
Sep. 30, 2012
|
|
Effective Income Tax Rate (Textual) [Abstract] | |
Effective income tax rate | 37.63% |
Change in valuation allowance | $ 0 |
Earnings Per Share (Details Textual) (Money Options [Member])
|
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 30, 2012
|
Sep. 30, 2011
|
|
Money Options [Member]
|
||||
Earnings Per Share (Textual) [Abstract] | ||||
Out of Money Options | 0 | 0 | 0 | 0 |
Equipment Deposit
|
9 Months Ended |
---|---|
Sep. 30, 2012
|
|
Equipment Deposit [Abstract] | |
Equipment Deposit |
Note D – Equipment Deposit As of September 30, 2012 the company has paid $393,968 towards the replacement of the Programmable Logic Control (PLC) system expected to be placed in service by the end of the year. See Note L – Commitments and Contingencies for further details. |