10-K 1 d444266d10k.htm FORM 10-K Form 10-K
Table of Contents

 

 

UNITED STATES

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 fiscal year ended December 31, 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

(Registrant’s telephone number, including area code)

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   The Nasdaq Stock Market, LLC (Nasdaq Capital Market)
(Title of Class)   (Name of exchange on which registered)

 

 

Indicate by check mark whether 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 15(d) of the Exchange Act.    Yes  ¨    No  x

Indicate by check mark whether the Registrant: (1) has filed all by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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   ¨    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

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2012 was approximately $19,286,824 based on the closing price for the registrant’s common stock reported by the NASDAQ Capital Market on that date. For purposes of this disclosure, shares of common stock held by officers and directors of the registrant and persons that may be deemed to be affiliates under the Act have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 13, 2013, there were 2,835,451 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for the Annual Meeting of Stockholders is scheduled to be held in 2013, which will be filed within 120 days after December 31, 2012, to the extent indicated in Part III.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  
Part I   

Item 1

 

Business

     3   

Item 2

 

Properties

     4   

Item 3

 

Legal Proceedings

     5   

Item 4

 

Submission of Matters to a Vote of Security Holders

     5   
Part II   

Item 5

 

Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer’s Purchases of Equity Securities

     6   

Item 6

 

Selected Financial Data

     6   

Item 7

 

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

     6   

Item 8

 

Financial Statements and Supplementary Data

     7   

Item 9

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     7   

Item 9A(T)

 

Controls and Procedures

     7   
Part III   

Item 10

 

Directors, Executive Officers, and Corporate Governance

     8   

Item 11

 

Executive Compensation

     8   

Item 12

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     8   

Item 13

 

Certain Relationships and Related Transactions and Director Independence

     8   

Item 14

 

Principle Accounting Fees and Services

     8   
Part IV   

Item 15

 

Exhibits and Financial Statement Schedules

     9   
 

Signatures

     10   


Table of Contents

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, packaging and food industries. The Company’s revenue for 2012 ($3,958,629) resulted primarily from the processing of medical items, packaging and food. The Company continues to diversify its customer base, however two customers accounted for approximately 59% of revenues in 2012.

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 European Union and Canada. Medical device sterilization represented approximately 60% of revenues in 2012. The State of Florida is the second leading state in the U.S. for FDA registered medical device companies.

Various types of packaging that contact food are irradiated to facilitate aseptic processing. The volume of packaging irradiated by the Company increased in 2012 and accounted for approximately 29% of revenues.

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 6% of revenues in 2012.

Although the Company focuses on medical sterilization, packaging and food irradiation, the Company has and will continue to take advantage of profitable opportunities to irradiate other products. Such items include cosmetic ingredients, horticultural items and consumer goods and accounted for approximately 5% of 2012 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, 2012, the Company had fifteen 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. Nordion (Canada) Inc. (“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. See “Relationship with Nordion” below.

This supplier does not have a contractual obligation or commitment to supply such radiation or specific quantities in the future. If Nordion is unable or unwilling to supply the radiation materials in quantities needed for us to properly irradiate products, our operating results could be harmed. We may not be able to find sufficient suppliers of

 

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Cobalt 60 at a reasonable price or at all, if such disruptions occur. In the event that Cobalt 60 is unavailable from Nordion, we believe we can obtain it from one other source. However, if we are unable to obtain Cobalt 60 at current prices, or if we are unable to acquire adequate supplies of it in a timely manner, our business will be materially affected.

Plant Safety and Regulatory Matters

We use radioactive material that could be dangerous to human health and safety or to the environment. Although the radiation source does require special handling, necessary precautions are implemented in regulations and practiced daily at the Company. 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.

We may incur significant costs to comply with environmental laws and regulations adopted in the future and in the event we breach current or future environmental laws and/or regulations, we may be subject to liabilities that could damage our business.

Relationship with Nordion

Until February 25, 2011, Nordion owned approximately 16.8% of the Company’s outstanding shares of Common Stock and had representation on the Board of Directors. Nordion, in addition to being a substantial shareholder, has assisted the Company since its commencement of operations in 1990. It aided in the design and construction of the irradiation facility, loaned money to the Company during the 1990’s when we were not profitable and has been our supplier of Cobalt. In addition, Nordion assisted the Company in obtaining a surety bond in the sum of $600,000 in order to meet the State of Florida facility permit bonding requirements. In connection therewith, the Company agreed to reimburse Nordion for any liability and expense which Nordion may sustain as a result of its commitments to the bond issuer. On July 7, 2010, the Company obtained its own irrevocable standby letter of credit for $600,000 to satisfy the State’s requirements. According to reports filed with the Securities and Exchange Commission, on February 25, 2011, Nordion sold its interest in the Company to Fort Ashford Holdings, LLC, a California private equity firm.

In July, 2012, the Company installed an additional 300,000 curies of Cobalt purchased from Nordion at a cost of $830,685 plus delivery and installation costs.

 

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, 2012, the Company had in use approximately 1,430,000 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.

 

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Item 3 Legal Proceedings

None

 

Item 4 Submission of Matters to a Vote of Security Holders

None

 

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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

 
     2012      2011  
     High      Low      High      Low  

First Quarter

   $ 7.44       $ 6.99       $ 4.98       $ 3.60   

Second Quarter

     7.00         6.67         6.50         4.15   

Third Quarter

     6.50         6.11         7.93         4.27   

Fourth Quarter

     5.25         4.78         7.40         5.13   

 

  (b) As of February, 13, 2013, there were approximately 282 record holders and approximately 2,500 beneficial owners of our common stock.

 

  (c) The Company has paid no dividends to date and does not anticipate paying any for the foreseeable future.

 

  (d) Our major stockholder may, in the future, have significant influence over all matters admitted to a stockholder vote, which could limit the ability of other shareholders to influence corporate activities and may adversely affect the market price of our stock.

 

Item 6 Selected Financial Data

Not applicable.

 

Item 7 Management’s Discussion and Analysis

Plan of Operations

Food Technology Service, Inc. had revenue of $3,958,629 in 2012 which is a 5.7 percent increase over 2011 revenue of $3,744,546. Management attributes revenue growth in 2012 primarily to seasonal volume increases by a large customer during the first half of the year. Net income increased 1.8 percent $925,943 in 2012 compared to $909,502 in 2011.

Revenue for the fourth quarter was relatively constant at approximately $962,000 in 2012 and 2011.

During 2012, processing costs as a percentage of revenue were 17.0 percent compared to 17.7 percent in 2011. 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 2012 were 32.1 percent compared to 31.2 percent in 2011. Again, this change 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 2012 by $43,889.

 

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Liquidity and Capital Resources

At December 31, 2012, the Company had cash on hand of $2,336,814.

On July 7, 2010, the Company entered into an agreement with a Regions Bank to establish an irrevocable standby letter of credit of $600,000, to satisfy State of Florida requirements for a Radioactive Materials License. The letter of credit will be automatically extended for an additional year or any further expiration date unless the bank provides a 120 day written notice to the Company. The letter of credit is collateralized by the Company’s real property and a $150,000 CD with Regions Bank to continue securing the Letter of Credit.

Additionally, On October 8, 2010, the Company entered into an agreement with a Regions Bank to provide for a line of credit of $400,000, bearing an interest rate of prime plus 1.35%, repayable in full on or before October 8, 2013. As of December 31, 2012 the Company did not draw on this line of credit.

Management will continue to closely monitor cash balances to ensure that the Company has sufficient cash on hand to meet its operating needs. Management believes that the Company has sufficient liquidity to meet our working capital and capital expenditure requirements for the next twelve months.

 

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 the 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, 2012. 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 as well as the results of an independent internal control review completed by an outside registered public accounting firm. Based on this assessment, management believes that, as of December 31, 2012, the Company’s internal control over financial reporting is effective in all areas except closing of accounts payable. Procedures were implemented subsequent to that date to mitigate the weakness in closing of accounts payable and restore effectiveness in all areas.

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.

 

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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 2013 Annual Shareholders Meeting scheduled to be held on May 18, 2013.

 

Item 11 Executive Compensation

Reference is made to the Company’s Proxy Statement to be used in conjunction with the 2013 Annual Shareholders Meeting scheduled to be held on May 18, 2013.

 

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 2013 Annual Shareholders Meeting scheduled to be held on May 18, 2013.

 

Item 13 Certain Relationships and Related Transactions and Director Independence

See Item 1 Business - “Relationship with Nordion.”

 

Item 14 Principle Accounting Fees and Services

Reference is made to the Company’s Proxy Statement to be used in conjunction with the 2013 Annual Shareholders Meeting scheduled to be held on May 18, 2013.

 

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PART IV

 

Item 15 Exhibits and Financial Statement Schedules

The following documents are filed as part of this report.

 

  (a) Financial Statements

 

     Page  

Reports of Independent Registered Public Accounting Firm

     F-2   

Balance Sheets

     F-3   

Statements of Operations

     F-5   

Statements of Stockholders’ Equity

     F-6   

Statements of Cash Flows

     F-7   

Notes to Financial Statements

     F-8   

 

  (b) Exhibits

 

No.

 

Description

      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)
**2(a)   Article III Number, Tenure and Qualifications
**2(b)   Article XV Control Share Aquisition
**10(h)   Agreement dated September 24, 2012 between the Company and Fort Ashford Holdings, LLC
  *14   Code of Ethics
**23   Consent of Independent Registered Public Accounting Firm
**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 Taxonomy Extension Schema Document
   101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
   101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
   101.LAB   XBRL Taxonomy Extension Label Linkbase Document
   101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

* 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.

 

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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 Officer

Date: March 28, 2013

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:

 

Signature

  

Title

 

Date

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

Richard G. Hunter, Ph.D.

  

Director

Chief Executive Officer and

Chief Financial Officer

  March 28, 2013

/s/ Douglas Bell

Douglas Bell

  

Director

  March 28, 2013

/s/ Gary Lifshin

Gary Lifshin

  

Director

  March 28, 2013

/s/ David Nicholds

David Nicholds

  

Director

  March 28, 2013

/s/ John T. Sinnott

John T. Sinnott, M.D., F.A.C.P

  

Director

  March 28, 2013

/s/ Ronald Thomas

Ronald Thomas, Ph.D.

  

Director

  March 28, 2013

 

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INDEX TO FINANCIAL STATEMENTS

 

     Page  

Financial Statements

  

Report of Independent Registered Public Accounting Firm

     F-2   

Balance Sheets – As of December 31, 2012 and 2011

     F-3   

Statements of Operations – For the Years Ended December 31, 2012 and 2011

     F-5   

Statements of Stockholders’ Equity – For the Years Ended December 31, 2012 and 2011

     F-6   

Statements of Cash Flows – For the Years Ended December 31, 2012 and 2011

     F-7   

Notes to Financial Statements

     F-8   

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Food Technology Service, Inc.

We have audited the accompanying balance sheets of Food Technology Service, Inc. as of December 31, 2012 and 2011 and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2012. Food Technology Service, Inc’s management is responsible for these financial statements. 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. 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 effectiveness of 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, 2012 and 2011 and the results of its operations and its cash flows for each of the years in the two-period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

 

FERLITA, WALSH, GONZALEZ & RODRIGUEZ, P.A.
Tampa, Florida
March 18, 2013

 

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FOOD TECHNOLOGY SERVICE, INC.

BALANCE SHEETS

 

     As of December 31,  
     2012     2011  
ASSETS   

Current Assets:

    

Cash

   $ 2,336,814      $ 2,000,367   

Certificate of Deposit, Restricted

     150,169        —     

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

     444,902        511,448   

Other Receivable

     11,390        —     

Prepaid Expenses

     16,979        28,467   

Deferred Tax Asset

     521,000        651,000   
  

 

 

   

 

 

 

Total Current Assets

     3,481,254        3,191,282   

Property, Plant and Equipment:

    

Buildings

     3,488,668        3,443,723   

Cobalt

     6,934,390        5,900,977   

Furniture and Equipment

     2,835,228        2,076,481   

Land

     171,654        171,654   

Less: Accumulated Depreciation

     (7,249,229     (6,830,734
  

 

 

   

 

 

 

Total Property, Plant and Equipment

     6,180,711        4,762,101   

Other Assets:

    

Deferred Tax Asset

     —          185,400   

Utility Deposits

     5,000        5,000   

Loan Fees – Net

     4,192        7,046   
  

 

 

   

 

 

 

Total Other Assets

     9,192        197,446   
  

 

 

   

 

 

 

Total Assets

   $ 9,671,157      $ 8,150,829   
  

 

 

   

 

 

 

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

 

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FOOD TECHNOLOGY SERVICE, INC.

BALANCE SHEETS

 

     As of December 31,  
     2012     2011  
LIABILITIES AND STOCKHOLDERS’ EQUITY   

Current Liabilities:

    

Accounts Payable

   $ 196,338      $ 32,002   

Accrued Liabilities

     256,117        68,242   
  

 

 

   

 

 

 

Total Current Liabilities

     452,455        100,244   

Deferred Tax Liabilities

     125,400        —     
  

 

 

   

 

 

 

Total Liabilities

     577,855        100,244   
  

 

 

   

 

 

 

Stockholders’ Equity:

    

Common Stock $.01 Par Value, Authorized 5,000,000 Shares, Issued 2,835,451 and 2,805,172, respectively

     28,354        28,051   

Paid-In Capital

     12,391,689        12,275,218   

Deficit

     (3,308,250     (4,234,193

Less, 5,154 Treasury Shares at Cost

     (18,491     (18,491
  

 

 

   

 

 

 

Total Stockholders’ Equity

     9,093,302        8,050,585   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 9,671,157      $ 8,150,829   
  

 

 

   

 

 

 

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

 

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FOOD TECHNOLOGY SERVICE, INC.

STATEMENTS OF OPERATIONS

 

     Years Ended December 31,  
     2012     2011  

Net Revenues

   $ 3,958,629      $ 3,744,546   
  

 

 

   

 

 

 

Costs and Operating Expenses

    

Processing Costs

     674,422        662,890   

Selling, General and Administrative

     1,270,244        1,168,248   

Depreciation and Amortization

     589,173        484,545   

Interest Expense

     12,240        253   
  

 

 

   

 

 

 

Total Costs and Operating Expenses

     2,546,079        2,315,936   
  

 

 

   

 

 

 

Income from Operations

     1,412,550        1,428,610   

Interest Income

     793        992   
  

 

 

   

 

 

 

Income before Income Taxes

     1,413,343        1,429,602   

Income Tax (Expense) Benefit - Deferred

     (487,400     (520,100
  

 

 

   

 

 

 

Net Income

   $ 925,943      $ 909,502   
  

 

 

   

 

 

 

Net Income Per Common Share

    

-Basic

   $ 0.328      $ 0.328   

-Diluted

   $ 0.317      $ 0.312   

Weighted Average Number of Common Shares Used in Computation

    

-Basic

     2,823,925        2,776,660   

-Diluted

     2,919,425        2,916,160   

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

 

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FOOD TECHNOLOGY SERVICE, INC

STATEMENTS OF STOCKHOLDERS’ EQUITY

 

     Common
Stock
     Paid-In
Capital
    Deficit     Treasury
Stock
 

Balance, December 31, 2010

     27,564         12,227,059        (5,143,695     (18,491

Stock Issued

     487         (487     —          —     

Share-Based Compensation

     —           48,646        —          —     

Net Income

     —           —          909,502        —     
  

 

 

    

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

   $ 28,051       $ 12,275,218      $ (4,234,193   $ (18,491

Stock Options Exercised

     251         (251     —          —     

Excess Tax Benefit – Stock Options Exercised

     —           47,900        —          —     

Share-Based Compensation

     52         70,122        —          —     

Expired Stock Options

     —           (1,300     —          —     

Net Income

     —           —          925,943        —     
  

 

 

    

 

 

   

 

 

   

 

 

 

Balance, December 31, 2012

   $ 28,354       $ 12,391,689      $ (3,308,250   $ (18,491
  

 

 

    

 

 

   

 

 

   

 

 

 

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

 

     Years Ended December 31,  
     2012     2011  

Cash Flows from Operations:

    

Cash Received from Customers

   $ 4,025,175      $ 3,587,587   

Interest Received

     793        992   

Interest Paid

     (511     (253

Cash Paid for Operating Expenses

     (1,581,731     (1,711,915
  

 

 

   

 

 

 

Net Cash Provided by Operations

     2,443,726        1,876,411   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Certificate of Deposit

     (150,169     —     

Letter of Credit Costs

     (12,269     (12,218

Purchase of Cobalt, Delivery & Installation

     (1,033,413     (901,716

Purchase of Furniture & Equipment

     (914,383     (94,956

Building Renovation

     (44,945     (161,694
  

 

 

   

 

 

 

Net Cash (Used) by Investing

     (2,155,179     (1,170,584
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Excess Tax Benefit From Exercises of Stock Options

     47,900        —     
  

 

 

   

 

 

 

Net Increase in Cash

     336,447        705,827   

Cash at Beginning of Period

     2,000,367        1,294,540   
  

 

 

   

 

 

 

Cash at End of Period

   $ 2,336,814      $ 2,000,367   
  

 

 

   

 

 

 

Reconciliation of Net Income to Net Cash Provided by Operations:

    

Net Income

   $ 925,943      $ 909,502   

Adjustments to Reconcile Net Income to Cash Provided or Used:

    

Depreciation

     574,050        464,418   

Amortization

     15,123        20,127   

Loss on Disposal of Assets

     80        —     

Deferred Income Tax

     487,400        520,100   

Excess Tax Benefit From Exercises of Stock Options

     (47,900     —     

Share-Based Compensation

     70,174        48,646   

(Increase)/Decrease in Receivables

     66,546        (156,959

(Increase)/Decrease in Other Receivables

     (11,390     —     

(Increase)/Decrease in Prepaid Expenses

     11,488        (3,611

Increase/(Decrease) in Payables

     164,336        22,219   

Increase/(Decrease) in Accruals

     187,876        51,969   
  

 

 

   

 

 

 

Net Cash Provided by Operations

   $ 2,443,726      $ 1,876,411   
  

 

 

   

 

 

 

Non-cash Financing Transactions:

    

Fair Value of Common Stock Issued Pursuant to Exercised Stock Options

   $ 168,835      $ 308,956   

Fair Value of Common Stock Issued as Bonus

   $ 26,285        —     

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

 

F-7


Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2012

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

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 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.

4. 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.

5. 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

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.

 

F-8


Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2012

 

6. Cash and Cash Equivalents

All highly liquid investments with original maturities of three months or less are considered to be cash and cash equivalents.

7. 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 Company’s uninsured balances totaled approximately $144,736 and $0 as of December 31, 2012 and 2011.

8. 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.

9. Fair Value of Financial Instruments

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

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 G - 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 exercises of stock options 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.

11. Advertising

The Company expenses all advertising costs when incurred. Advertising expense recognized for the years ended December 31, 2012 and 2011 was $10,513 and $4,713, respectively.

12. Reclassification

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

Note B - Certificate of Deposit

Certificate of deposit totaling $150,169 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.

 

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Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2012

 

Note C - 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 D - Letter and Line of Credit). These fees were amortized based on the life of the loans and written off upon completion. Amortization expense for the years ended December 31, 2012 and 2011 was $15,123 and $20,127, respectively.

Note D - 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 $150,169 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 December 31, 2012, the Company has not used the line of credit.

Note E - Income Taxes and Available Tax Loss Carryforwards

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

 

     Years Ended December 31,  
     2012      2011  

Current

     

Federal

   $ —         $ —     

State

     —           —     
  

 

 

    

 

 

 
     —           —     

Deferred-Benefit

     

Federal

     416,200         444,100   

State

     71,200         76,000   
  

 

 

    

 

 

 
     487,400         520,100   
  

 

 

    

 

 

 

Total Income Tax Expense /(Benefit)

   $ 487,400       $ 520,100   
  

 

 

    

 

 

 

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:

 

     Years Ended December 31,  
     2012      2011  

Expected Provision At US Statutory Rate

   $ 438,700       $ 486,100   

State Income Tax Net Of Federal Benefit

     46,900         51,900   

Nondeductible Expenses

     1,800         6,500   

Change In Estimates And Available NOL Carryforwards

     —           1,100   

Change In Valuation Allowance

     —           (25,500
  

 

 

    

 

 

 

Income Tax Expense / (Benefit)

   $ 487,400       $ 520,100   
  

 

 

    

 

 

 

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.

 

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Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2012

 

The Company’s NOL carryforward is as follows:

 

     As of December 31,
2012
    As of December 31,
2011
 
     Federal     State     Federal     State  

NOL Carryforward - Beginning Of Year

     2,071,925        2,071,925        3,672,530        3,672,530   

Less Used

     (466,060     (963,254     (1,600,605     (1,600,605

Less Expired

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

NOL Carryfoward - End Of Year

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

 

 

   

 

 

   

 

 

   

 

 

 

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

 

     As of December 31,
2012
    As of December 31,
2011
 
     Current      Noncurrent     Current      Noncurrent  

NOL Carryforward

   $ 521,000         56,000      $ 651,000         128,700   

Accrued Liabilities

     —           19,500        —           17,700   

Share-Based Compensation

     —           38,500        —           39,000   

Property, Plant & Equipment

     —           (239,400     —           —     

Less: Valuation Allowance

     —           —          —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Net Deferred Taxes

   $ 521,000       $ (125,400   $ 651,000       $ 185,400   
  

 

 

    

 

 

   

 

 

    

 

 

 

The change in the valuation allowance is as follows:

 

     Balance     Change  

December 31, 2010

     (25,500     —     

December 31, 2011

     —          25,500   

December 31, 2012

     —          —     

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 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 all of the Company’s deferred asset. As of December 31, 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 Company’s tax years 2009 through 2011 remain open to examination by taxing jurisdictions.

Note F - 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 December 31, 2012 and 2011 in relation to the resignation clause and accrual of $51,700 and $47,000 has been recorded.

As of December 31, 2012 an accrual of the Company’s use tax liability has made in the amount of $166,524, including $11,729 of accrued interest.

 

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Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2012

 

Note G - 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 December 31, 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 (“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 outstanding under this plan as of December 31, 2012 and 2011 are none and 20,000, respectively.

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.

In 2003 and 2008 the company reached the maximum number of stock options allowed to be issued under the 2000 stock option plan. The company therefore issued 65,000 stock options outside of the aforementioned plans. Options outstanding outside a specific plan as of December 31, 2012 and 2011 are 60,000 and 65,000, respectively.

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.

 

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Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2012

 

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.

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, 2010

     242,000      $ 2.43         3.01   

Granted

     10,000      $ 4.85      

Exercised

     (101,500   $ 3.24      

Expired/Forfeited

     (11,000   $ 3.30      
  

 

 

      

Outstanding At December 31, 2011

     139,500      $ 1.95         4.02   

Granted

     10,000      $ 6.26      

Exercised

     (41,000   $ 2.57      

Expired/Forfeited

     (3,000   $ 2.52      
  

 

 

      

Outstanding At December 31, 2012

     105,500      $ 2.10         4.50   
  

 

 

      

Vested/Exercisable At December 31, 2012

     93,500      $ 2.25         4.31   
  

 

 

      

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, 2010

     64,500      $ 0.58   

Granted

     10,000      $ 3.25   

Vested

     (46,500   $ 1.27   
  

 

 

   

Nonvested, At December 31, 2011

     28,000      $ 0.41   

Granted

     10,000      $ 4.36   

Vested

     (26,000   $ 1.99   
  

 

 

   

Nonvested, At December 31, 2012

     12,000      $ 0.28   
  

 

 

   

Expired/Forfeited During Year

     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:

 

     Years Ended December 31,
     2012   2011

Risk Free Interest Rate

   0.62% - 1.04%   0.83% - 2.24%

Expected Volatility

   77.98% - 80.25%   80.03% - 84.66%

Expected Life

   5 years   5 years

Dividend Yield

   0%   0%

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.

 

F-13


Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2012

 

For the years ended December 31, 2012 and 2011, 41,000 and 101,500 of company’s stock options were exercised under a cashless program resulting in the issuance of 25,125 and 48,714 shares and an excess tax benefit of $47,900 and $0, respectively.

For the years ended December 31, 2012 and 2011 there were 3,000 and 11,000 expired stock options. The expired stock options created a $1,300 and $0 tax benefit that has been charged against paid-in capital from excess tax benefits.

The Company recognized $70,174 and $48,646 share-based compensation expense for the year ended December 31, 2012 and 2011, respectively. On November 30, 2012, the Company issued 5,154 shares of Company stock in lieu of cash as a bonus to an employee with a fair market value of $26,285. This amount is included in the amount presented above as share-based compensation.

As of December 31, 2012, there was $19,804 of unrecognized share-based 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 0.91 years.

Note H - Related Party Transactions

The Company’s supplier of Cobalt, Nordion (Canada) Inc., formerly MDS Nordion, owned approximately 16.8% of the Company’s 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 purchased the following Cobalt from Nordion as a related party:

 

Year

   Curies      Amount  

2010

     105,757       $ 81,740   

2011

     200,000       $ 512,978   

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.

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

 

     For the Years Ended December 31,  
     2012      2011  

Numerator:

     

Net Income

   $ 925,943       $ 909,502   
  

 

 

    

 

 

 

Denominator:

     

Wtd. Avg. Common Shares Outstanding

     2,823,925         2,776,660   

Dilutive Effect Of Stock Options

     95,500         139,500   
  

 

 

    

 

 

 

Wtd. Avg. Common Shares Outstanding, Assuming Dilution

     2,919,425         2,916,160   
  

 

 

    

 

 

 

 

F-14


Table of Contents

FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2012

 

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

 

     For the Years Ended December 31,  
     2012      2011  

Stock option with exercise price of $6.26

     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.

 

     For the Years Ended December 31,  
     2012     2011  

Customer 1

     30     36

Customer 2

     29        24   
  

 

 

   

 

 

 

Total

     59     60
  

 

 

   

 

 

 

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.

 

F-15