-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BwL7AZ3zW9zE+Ya9jKBLvOGt8Lw5Pey7yeJi3smpEzDgmHPQjO3oM5/Zr1VHP/3d JcDwxjXGu3inBYRSRKS7Og== 0000868267-00-000001.txt : 20000331 0000868267-00-000001.hdr.sgml : 20000331 ACCESSION NUMBER: 0000868267-00-000001 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD TECHNOLOGY SERVICE INC CENTRAL INDEX KEY: 0000868267 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 592618503 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-19047 FILM NUMBER: 587092 BUSINESS ADDRESS: STREET 1: 1801 THONOTOSASSA RD STREET 2: SUITE 3 CITY: PLANT CITY STATE: FL ZIP: 33566 BUSINESS PHONE: 8137523364 MAIL ADDRESS: STREET 1: 1801 THONOTOSASSA RD STREET 2: SUITE 3 CITY: PLANT CITY STATE: FL ZIP: 33566 FORMER COMPANY: FORMER CONFORMED NAME: VINDICATOR INC /FL/ DATE OF NAME CHANGE: 19930328 FORMER COMPANY: FORMER CONFORMED NAME: VINDICATOR OF FLORIDA INC /FL/ DATE OF NAME CHANGE: 19600201 10KSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1999 Commission File No. 0-19047 FOOD TECHNOLOGY SERVICE, INC. (Exact name of Registrant as specified in its charter) FLORIDA 59-2618503 (State of incorporation or organization) (Employer Identification Number) 502 Prairie Mine Road, Mulberry, FL 33860 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (863)425-0039 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The Registrant's operating revenues for its most recent fiscal year were $387,966. As of December 31, 1999, 10,316,201 shares of the Registrant's Common Stock were outstanding, and the aggregate market value of the voting stock held by non-affiliates (5,001,533 shares) was approximately $30,324,294 based on the market price at that date. DOCUMENTS INCORPORATED BY REFERENCE None TABLE OF CONTENTS PART I PAGE NO. Item 1 Business ..........................................................1 Item 2 Properties.........................................................5 Item 3 Legal Proceedings..................................................6 Item 4 Submission of Matters to a Vote of Security Holders................6 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters................................................7 Item 6 Management's Discussion and Analysis...............................7 Item 7 Financial Statements.............................................. 9 Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................... 9 PART III Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.................10 Item 10 Executive Compensation............................................11 Item 11 Security Ownership of Certain Beneficial Owners and Management....14 Item 12 Certain Relationships and Related Transactions....................15 Item 13 Exhibits and Report on Form 8-K...................................15 PART I Item 1. 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 produced by Cobalt 60 to treat or process various foods for insect disinfestation, shelf life extension and control of certain disease causing microorganisms. Operations commenced in January 1992 upon completion of it's facility. Since 1992 numerous delays have been encountered in gaining the necessary FDA and USDA approvals, and revenues to date have been nominal as a result. Revenues for 1999 were $387,966 of which approximately 41% was attributable to the processing of seasonings and spices, 20% to packaging materials and 21%to testing products for others. The benefits of irradiation in preventing food-borne illness are well- known. Food irradiation is supported by the United States Department of Agriculture ("USDA"), the World Health Organization, the United States Public Health Service, the American Medical Association, the Institute of Food Technologists, and reputable scientific and medical organizations throughout America. In addition, more than forty countries have approved the irradiation of food products. The United States Food & Drug Administration ("FDA") has approved irradiation as a safe and effective means of processing a variety of foods. To date, the FDA has approved the irradiation of (i) pork, to control trichinosis; (ii) poultry, for the control of disease-causing pathogens; (iii) spices, for sterilization; (iv) all fresh fruits and vegetables, for insect disinfestation, and to delay maturation, which extends the shelf life of many fresh fruits and vegetables; and (v)uncooked meat to control pathogens and extend shelf life. The Company expects that its success will be dependent upon the processing of poultry, meat and shellfish. The USDA published the final rules for irradiation of meat and meat products on February 22, 2000. The Company believes these rules will positively impact the Company's business in the long term, to produce profitable results for the Company's shareholders. Management is working diligently with meat processors, food distributors and with major retailers to get them to use this technology, which can protect consumers from dangerous pathogens. On February 16, 1999 the Company signed a Distribution and Sale Agreement with Colorado Boxed Beef Company with the purpose and intent to promote the marketing and sale of irradiated meat and poultry. On February 25, 2000 Colorado Boxed Beef Company announced that they would have irradiated products in Florida supermarkets before the summer of 2000. Food Technology Service presently irradiates meat under a special FDA approval, for the NASA Astronauts. There are currently several petitions awaiting FDA approval. The shellfish industry is waiting for FDA approval for shellfish. The egg industry is waiting for egg approval. The USDA and the Food Irradiation Coalition, of which the Company is a member, has petitioned the FDA to allow the irradiation of processed meats to control Listeria. The USDA has also petitioned the FDA to raise the maximum dose allowed for poultry and remove the requirement for non-barrier packaging for poultry. The Company does not intend to produce or sell foods. The Company will market its irradiation process to growers and producers, as a substitute for and/or a complement to other food processing methods, such as canning, freezing, heat pasteurization and fumigation. The cost to a customer of the Company's irradiation services will vary depending on such factors as the amount of time the customer's food products occupy the radiation chamber, the costs and availability of competing methods of food processing, and general supply and demand and other economic factors. Processing Plant Operations Procedures Products to be irradiated are placed onto the conveying system. Some products, because of their density and pallet size, may have to be depalletized for radiation processing to ensure that the appropriate radiation dose is applied to the product. The conveying system automatically moves the product through the irradiation chamber at a predetermined rate specified by the Company's personnel. The positioning of the product relative to the radiation source and the distance of the product from the radiation source are fixed. The proper radiation dose is determined by the duration of the exposure of the product to the radiation source, which is carefully controlled to provide the desired dose. The exposure time required to achieve the desired dose will depend on the amount of Cobalt 60 in use and the density of the material exposed. Like an airport x-ray system, the process does not make the food radioactive. The food is safe to eat immediately after processing. The total time required to process different products will vary, primarily reflecting (i) the different radiation doses required for different purposes (e.g., insect disinfestation requires a lower dose than does elimination of microorganisms), and (ii) the density of the product being irradiated (e.g., irradiation of relatively dense bulk poultry takes longer than irradiation of less dense retail packaged poultry). A higher or lower dose (but always within the range approved) can be applied by increasing or decreasing the time of exposure of the food to the radioactive source. Devices which measure the level of irradiation are placed in and around the product being irradiated, and they allow the Company's personnel to ensure that proper levels have been achieved. With the addition of refrigeration inside the facility, and the current supply of Cobalt 60, the plant can handle any and all products in an efficient manner. Personnel At December 31, 1999, the Company employed ten persons, made up of two salesmen, four administration personnel and four licensed plant operators. If and when the facility becomes fully operational, the Company anticipates that it will need to hire approximately seven additional employees for each shift the facility operates. Required personnel will included a shift supervisor, a controller/ scheduler, a quality assurance supervisor, a plant operator, and three loaders/unloaders. MDS Nordion, a corporation located in Kanata, Ontario, Canada, Parent of the Company ("Nordion") does all handling of the Cobalt 60 source, which occurs periodically. See "Agreements with MDS Nordion" below. Cobalt 60 Supply The Company has in place approximately 800,000 thousand curies of Cobalt 60 The level of radioactivity of Cobalt 60 declines at approximately 12% per year, and new Cobalt 60 must from time to time be purchased to maintain an appropriate radiation level. Nordion is the Company's sole supplier of Cobalt 60 and has agreed to sell the Company all its requirements for Cobalt 60, and to accept the return of all used Cobalt 60 that has reached the end of its useful life. Cobalt 60 is available from several sources. See "Agreements with MDS Nordion" below. Additional Uses for Irradiation Research Services The Company uses its facility to irradiate various products as required in research activities being conducted by others, including state and federal government agencies and academia. Medical and Consumer Products The Company does not expect to provide irradiation treatment for medical products, because under the terms of its agreement with Nordion the Company will under some circumstances be prohibited from processing any product other than food and related products. However, if the Company's facility does not operate successfully as a food irradiation facility, it could be converted at little or no cost to a medical and consumer products irradiation facility. See "Agreements with MDS Nordion" below. In 1999, with MDS Nordion's concurrence, the Company processed a significant amount of packaging materials, making use of excess capacity without interfering with its focus on food. Plant Safety Safety to Surrounding Community While a radiation source does require special handling, the necessary precautions are well understood and practiced daily at numerous medical supply irradiation plants already in operation. Unlike a nuclear power plant, the process does not involve any nuclear reaction. An irradiator is not a nuclear reactor. It is simply a processing plant containing a shielded area where foods are exposed to a source of ionizing radiation. The Company's irradiation activities will produce no harmful solid, liquid or gas effluents or pollutants. Safety to Plant Workers 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 understood. These precautions are enforced by several federal and state agencies in the United States. The Bureau of Radiation Control, Radioactive Materials Section, of the Florida Department of Health inspects the facility on an annual basis as does the U.S. Food and Drug Administration. The USDA inspects the premises whenever the Company is processing meats or poultry. Regulatory Matters Regulation of Irradiated Foods In the United States, primary responsibility for approval of food irradiation rests with the FDA. No irradiated food can be sold, unless the FDA has found that irradiation of a particular food, at specified doses, is both safe and generally effective for the intended purpose. To date, the FDA has approved the irradiation of poultry for the control of Salmonella and certain other disease causing microorganisms, the irradiation of all fresh fruits and vegetables for insect disinfestation and shelf life extension, the irradiation of spices for sterilization, and the irradiation of pork for the control of trichinosis. A petition for the approval of the irradiation of fish and shellfish is presently pending. On July 7, 1994, a petition was submitted to the FDA by the meat industry to gain approvals to irradiate all meats, so that E. coli: 0157 H7 and other pathogens can be removed from meat products. The FDA approved irradiation of meat products for controlling disease-causing microorganisms on December 2, 1997. On February 22, 2000 the USDA/FSIS released the final rule for the irradiation of meat and meat products. In general, no further approvals are necessary for the sale of irradiated fresh fruits and vegetables for shelf life-extension or quarantine treatment in the United States. However, the shipment of any irradiated food for export will be subject to the rules of the country of destination. There have been illnesses caused by bacteria and parasites in fresh foods and the dose level required for irradiation to provide safety from these organisms is higher than currently allowed and will require an additional approval from the FDA. Some states and countries require that certain foods be quarantined on import to prevent the establishment or spread of insects commonly carried by the food. The Company has had discussions with a number of parties regarding the use of irradiation for fruit and vegetables for export and for shipment between the southern states in the United States and has successfully irradiated products for quarantine treatment that have been accepted by California and Texas. Quarantine restrictions also apply to certain foods imported into the United States. The USDA has established rules approving irradiation, at the point of shipping, in satisfaction of the quarantine requirements for papayas. The Company is currently working with the USDA Animal and Plant Inspection Service to allow the USDA to approve irradiation at the point of import as satisfying such requirements, but the Company cannot predict whether such approvals will be forthcoming. The port facility at Tampa is a major point of import of produce, much of which is subject to USDA quarantine requirements. The USDA also regulates any processing of meat and poultry, whether for irradiation, packaging or otherwise. The USDA has promulgated rules relating to such processing to ensure that the food remains safe and wholesome. In general, such rules establish standards for the implementation of the approval established by the FDA, and relate to such matters as good handling and processing practices. These rules deal with such matters as (i) minimum irradiation levels to assure effective treatment, (ii) temperature standards to prevent thawing of frozen foods, (iii) requirements for the separation of processed from non-processed foods, and (iv) labeling requirements. The USDA has already adopted rules relating to irradiation processing of pork, poultry and has now finalized the regulations for the processing of meat products. Regulation of the Facility and the Irradiation Process The Company has obtained a license for the operation of its facility from the Office of Radiation Control, Florida Department of Health, which regulates the ownership and operation of all irradiation facilities and equipment in the State of Florida (including, for example, hospital x-ray equipment). The agency monitors the facility's operation to make certain that all safety regulations are being met. Other Considerations The Company recognizes that it is seeking to extend the commercial irradiation industry into new fields in the United States, and governmental bodies may seek to impose on the Company and its business regulatory requirements not now anticipated. In addition, the long-term course of regulatory policy cannot be predicted and, although regulatory approvals have been forthcoming, there can be no assurance that laws and regulations will not be applied in a manner that adversely affects the Company. Currently, the transportation and sale of irradiated foods is now permitted in all 50 states. Although the Company is not aware of any significant regulatory requirements applicable to its proposed business, there can be no assurance that the Company will not encounter unanticipated regulatory requirements. Agreements with MDS Nordion The Company, in September 1990, entered into an agreement with MDS Nordion, whereby Nordion agreed to supply the Company with all of the equipment necessary to operate its irradiation facility, including 400,000 curies of Cobalt 60. The total purchase price for the equipment and cobalt was approximately $2,400,000, of which $400,000 was paid and the balance of approximately $2,000,000 was scheduled to become due and payable, without interest, on September 4, 1994. The balance of this debt including accrued interest at December 31, 1999 is $954,476. Nordion has agreed to extend the date for repayment of the balance of this indebtedness, and accrued interest, to January 5, 2000. This indebtedness is convertible into common stock with a conversion rate of $.80 per share for the balance of the original loans ($378,598). For all cash advances and interest accrued after August 1, 1997 the conversion option is at 70% of the closing price the day prior to the execution of the option. For terms of the Agreement, reference is made to Note D of the Notes to Financial Statements. On October 22, 1991 the Company entered into a Reimbursement and Indemnity Agreement with Nordion whereby Nordion assisted the Company in obtaining a surety bond in the sum of $600,000. In connection therewith the Company agreed to reimburse Nordion for any and all liabilities, costs, damages, attorney fees and other expenses which Nordion may sustain as a consequence of the Indemnity Agreement from Nordion to the insurer or payments made by the Canadian Imperial Bank of Commerce on a letter of credit in the amount of $450,000 furnished by the Bank to the insurer on behalf of Nordion, each in connection with the issuance of the surety bond. This surety bond and associated guarantees continue to be in effect. In addition to the 1 million curies of Cobalt 60, which were supplied the Company in 1990 and 1991, Nordion, has stored an additional amount of Cobalt 60 at the Company's facility; in anticipation that it would be needed in the Company's operations. See Item 6 Management's Discussion and Analysis and Note H of the Notes to Financial Statements. Due to the decline in level of radioactivity as a result of decay, there is currently available approximately 800,000 curies both owned and stored. Although the additional Cobalt-60 is located on the Company's premises and available to it for use in processing, title to this Cobalt-60 continues to be held by Nordion and may be removed by Nordion in its discretion at any time. In 1999 Nordion agreed to guarantee a line of credit of $500,000 from a bank. On December 31, 1999 $250,000 of this amount is available to fund 2000 operations. The agreements with Nordion provide that, until the Company pays its debt to Nordion in full, the Company may not compete with Nordion's existing customers in their irradiation of non-food products, unless the Company obtains Nordion's prior consent. This provision could make it difficult for the Company to succeed in the event that irradiation of food and related products is not sufficient to allow the Company to become profitable. Item 2. Properties - ------------------ The Company's irradiation facility and executive office are located on an approximately 4.33 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 produce growers and the port facility at Tampa. Should the Company's first facility prove successful, the site is sufficiently large to add one or two additional irradiation chambers, thereby increasing the capacity of the facility. The Company's irradiation facility and executive office comprises 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 irradiation processing plant consists of a radiation source, an automated conveying system, and operating safety controls. The heart of the plant is the radiation source. Within the processing chamber, a water-filled pool, approximately 28 feet deep, is used to shield and store the radiation source in the "off" position. The pool is enclosed in a radiation proof chamber, a double safeguard against the escape of any radiant energy. The concrete walls and roof of the processing chamber are approximately 6 feet thick and, during the times that the source is out of the pool in the "on" position, will provide safe shielding of adjacent areas such as the control room, work floor, offices and outdoor grounds. The control room contains operating and safety controls. The conveying system is used to transport foods to and from the processing chamber. The Company's facility is designed to operate 24 hours a day, seven days a week. Although the Company currently has available approximately 800,000 thousand curies of Cobalt 60, the facility is designed to meet international standards of radiation protection with an installed source of 7,000,000 curies. The capacity of the source racks, however, will only permit a maximum of 5,000,000 curies of Cobalt 60 to be installed. As indicated under Item 1 Business - Agreements with MDS Nordion" substantially all of the assets of the Company are pledged as collateral against the obligation to Nordion. Item 3. Legal Proceedings - ------------------------- None Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- None PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters - ----------------------------------------------------------------------------- (a) The following table shows the range of closing bid prices for the Company's Common Stock in the NASDAQ SmallCap 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 ---------- 1999 High Low ---- ---- --- First Quarter $6.219 $2.25 Second Quarter 5.50 2.938 Third Quarter 6.68 2.50 Fourth Quarter 8.625 3.375 1998 ---- First Quarter $6.00 $2.56 Second Quarter 6.00 3 50 Third Quarter 4.18 2.50 Fourth Quarter 4.62 2.00 (b) Approximate Number of Equity Security Holders. ---------------------------------------------- As of December 31, 1999, the approximate number of beneficial holders of Common Stock of the Company was approximately 3,500. (c) Dividend History and Policy --------------------------- The Company has paid no dividends to date and does not anticipate paying any for the foreseeable future. Item 6. Management's Discussion and Analysis - -------------------------------------------- Plan of Operations The Company completed construction of its irradiation facility in Mulberry, Florida in December 1991 and the facility became operational on January 24, 1992. For the reasons set forth below, the Company is still in the developmental stage. The plant was constructed to irradiate fruits and vegetables for the primary purpose of extending shelf life and poultry to control salmonella and other illness causing bacteria. Soon after the commencement of operations, it was recognized that the success of the Company would be dependent on the irradiation of poultry and red meats. This was due to the fact that most of the fresh fruits and vegetables are pre-sold in the Florida area where the extension of shelf life is not necessarily a help for the fruit and vegetable growers. In addition, although the FDA has approved the use of irradiation for the extension of shelf life, the USDA Animal and Plant Health Inspection Service (APHIS) has not completed their approval for the use of irradiation for post harvest quarantine treatment. As a result, Japan, a large importer of grapefruit, has declined to consider irradiation as a quarantine treatment until approval is obtained from the USDA. Although the rules for the irradiation of poultry were finalized by the U. S. Department of Agriculture and published in the Federal Register on September 22, 1992, the Company is still awaiting FDA approval for standard packaging material for retail poultry. During 1997 the FDA approved the use of a white tray for meat products. While awaiting action by the FDA and the USDA, the Company's revenue (approximately $387,966 for 1999) has been realized primarily from the processing of food ingredients, seasonings and spices, food packaging materials and from testing the processing of various other food commodities. The red meat industry, which has been faced with pathogen problems such as E. Coli:0157 H7 supported a petition to irradiate all meats that was approved by the FDA on December 7, 1997. On February 22, 2000 the USDA/FSIS published the final regulation. At December 31, 1999, the Company had negative working capital of ($156,390) and cash of approximately $21,000. The loss from operations for the year ended December 31, 1999 was $862,631. Operating costs in 1999 were approximately $892,752, up from $863,339 in 1998. The increase in operating costs resulted primarily from an increase in marketing and promotion. The increase in personnel was due primarily to an attempt by the Company to increase contact with potential customers whereas the increase in marketing and promotion supported the additional personnel. The Company believes that increased revenues will have a positive impact on the negative gross margins since processing costs and General, Administrative and Developmental costs will not increase significantly as a result of an increase in revenue. On September 25, 1992 Nordion stored approximately 2,600,000 curies of cobalt at the Company's plant. Subsequently 700,000 curies were returned, and 1,460,000 curies decayed, leaving approximately 440,000 curies at the Company's plant. Such cobalt was stored in anticipation that it would be needed in the Company's operations; however, such cobalt has not been needed because of low processing volume due to the lack of necessary Governmental approvals and marketing demand. Due to physical layout of the Company's plant, all product processed was exposed to Nordion's cobalt. If Nordion's cobalt had been owned by the Company, or had been required for increased processing volume or speed, the decay of such cobalt would have been charged to operations, resulting in an increased expense of approximately $230,000, $200,000 and $150,000 for the years ended December 31, 1997, 1998 and 1999, respectively (approximately $1,980,000 from inception through December 31, 1999). The net losses for such periods would have been $1,236,981, $821,456 and $1,018,824 respectively ($11,065,166 from inception through December 31, 1999). At such time that the Company's operations increase to such an extent that the Nordion cobalt is required for increased processing volume or speed, the Company will begin charging its decay to operations. At December 31, 1999, the Company's outstanding debt amounted to $1,204,476 which consisted of a financing agreement with Nordion due January 5, 2000 plus interest at prime plus 1% and as convertible debenture payable to Nordion due January 5, 2001 plus interest at prime plus 1%. The debt amount includes a credit line of $250,000. To fund its operations during 1999, the Company sold 226,200 shares for $438,725 in a private sale of shares of Common Stock and from increases in notes payable. It is not expected that income from operations will be sufficient in the foreseeable future to cover the Company's operating costs. Although Nordion has indicated that it will continue to fund operations, there is no assurance that it will continue to do so. In the event Nordion discontinues funding the Company's operations or the Company is not successful in raising additional capital, the Company will have to curtail a portion or all of its operations. Item 7. Financial Statements - ---------------------------- Reference is made to the Company's Financial Statements included herewith. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - ------------------------------------------------------------------------- None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act - ------------------------------------------------------------------------------ Directors and Executive Officers of the Company. As of December 31, 1999, the Directors and Executive Officers of the Company are as follows: Name Age Position with the Company - ---- --- ------------------------- E. W. (Pete) Ellis 58 President/Chief Executive Officer/ Director Harley W. Everett 51 Chief Financial Officer Frank M. Fraser 66 Director John Hammond 61 Director R. Craig Hunter 48 Director David Nicholds 52 Director Paul O'Neill 61 Director All Directors of the Company hold office until the next annual meeting of shareholders or until their successors have been duly elected and qualified. Officers are elected annually by the Board of Directors to hold office until their successors are duly elected and qualified. E. W. (Pete) Ellis has been President, Chief Executive Officer and Director since December 1996. He has been in the food business for the past 33 years, ten years of which were spent with Oscar Mayer & Co., and fifteen years with ConAgra. He was employed in sales and marketing with both companies. He was President and owner of Ellis, Harris, and Associates, Inc., a food brokerage company, from 1986 to 1988. Harley W. Everett has been Executive Vice President of the Company since May 1990. He was President of Harley Williamson Software from 1988 until joining the Company in 1990. Mr. Everett was Chief Executive Officer of Micro Resources Corporation of America from 1986 through 1988, and was Product Development Manager for National Computer Systems, Inc. from 1983 through 1986. Frank M. Fraser has served as a Director of the Company from May 1992 through September 1993. He was reelected as a Director in July 1996. In June 1964, Mr. Fraser joined Atomic Energy of Canada Limited (now MDS Nordion) as a project engineer. He was Vice President of Market Development at Nordion prior to his retirement in 1998. He is past Chairman of the Association of Industrial Irradiators International and has Chaired the International Meeting on Radiation Processing. John Hammond has served as a Director of the Company since February 9, 1999. Mr. Hammond has 29 years of food business experience with Central Soya, Inc., ConAgra and, for the last 9 years, with Hillandale Farms. R. Craig Hunter has served as a Director of the Company since September 1998. He is Vice President of Business Development of MDS Nordion's Industrial Irradiation Business Unit. Prior to this, he spent six (6) years in the cosmetics industry; half of that time running Kolmar Laboratories' operation in Sydney, Australia and then as Vice President International at Kolmar Laboratories Inc. David Nicholds has served as a Director of the Company since September 1998. He is the Vice President, General Counsel and Corporate Secretary of MDS Nordion. He joined MDS Nordion in 1989. Paul O'Neill has served as a Director of the Company from August 1992 through September 1993. He was reelected as a Director in July 1996. He is currently retired. From January 1985 to March 1992, Mr. O'Neill was President, Chief Executive Officer and a Director of Nordion. From September 1978 to January 1985 he was Chief Financial Officer of Atomic Energy Canada Limited and Corporate Executive Vice President from February 1982 to January 1985. Compliance with Section 16(a) of the Securities Exchange Act of 1934 - -------------------------------------------------------------------- The Company believes that the reporting requirements, under Section 16(a) of the Exchange Act, for all its executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company were satisfied except as follows: Nordion, owners in excess of 10% of the companies outstanding shares of common stock, filed one Form 4 report one month late, covering an aggregate of 18 transactions. Director Meetings and Committees - -------------------------------- During the year ended December 31, 1999, the Board of Directors of the Company held a total of four (4) meetings. Each of the Directors attended more than 75% of the total number of meetings of the Board of Directors The Board of Directors has a standing Audit Committee, which is the only committee of the Board. The Audit Committee is responsible for recommending to the Board of Directors the engagement or discharge of the independent public accountants, meeting with the independent public accountants to review the plans and results of the audit engagement, approving the services to be performed by the independent public accountants, considering the range of the audit and non-audit fees, reviewing the adequacy of the Company's system of internal accounting, reviewing the scope and results of the Company's internal audit procedures. The Audit Committee is comprised of Messrs. Hammond and O'Neill. The Audit Committee met once during 1999. Item 10. Executive Compensation - ------------------------------- Compensation of Directors - ------------------------- On February 9, 1999 the Board of Directors approved an option plan for non- employee Directors. Under the plan, non-employee Directors receive options to purchase 3,000 shares per year plus 1,000 shares per meeting attended. Such options are granted in January of each year at the quoted market price at the beginning of the previous year and must be exercised on or before five years from the date of grant. The options are granted pro rata if a Director terminates during the year. Non-employee Directors are also reimbursed for out-of-pocket expenses. Compensation of Chief Executive Officer - --------------------------------------- The following tables set forth certain information relating to the compensation earned by the Chief Executive Officer of the Company for the years indicated. No officer received compensation in excess of $100,000 for the past year. Summary Compensation Table Long-Term Compensation Awards ------ Securities Annual Compensation Restricted Underlying Year Salary($) Stock Options(#) ---- ------------------- ---------- ----------- E. W. (Pete) Ellis President and Chief Executive Officer(1) 1999 $ 70,000 1998 $ 70,000 10,000 shares 1997 $ 70,000 ___________ (1) On December 9, 1996 the Company entered into a five-year employment agreement with Mr. Ellis which provides for an annual compensation of $70,000. In addition, Mr. Ellis was granted a five year option to purchase 100,000 shares of the Company's common stock. The option vests 20% per year commencing December 9, 1997 and is exercisable at $1.00 per share, the fair market value on the date of grant. Option Exercises in 1999 The following table sets forth information regarding options exercised during the Company's last fiscal year and the value of unexercised options at December 31, 1999. The market value price on that date was $6.063. Aggregate Option Exercises in Last Fiscal Year and Year End Option Values Number Value of Unexercised of Unexercised Securities in-the Underlying Money Option Options At Year End At Year End (1)(3) ------------- -------------- Shares Acquired Value On Realized Name Exercise (1) Exercised Unexercised Exercised Unexercised ---- -------- -------- --------- ----------- --------- ----------- E.W. (Pete) Ellis 36,000 $123,000(2) -0- 54,000 -0- $262,902 ___________ (1) Value calculated by determining the difference between the fair market value of the Common Stock underlying options and the exercise or base price of the options at exercise or at the fiscal year end, as appropriate. (2) The exercise prices were $1.00 for 32,000 shares with a fair market value of $3.25 for 8,000 shares on May 11, 1999, $4.50 for 12,000 shares on October 13, 1999, and $5.50 for 12,000 shares on February 26, 1999. The exercise price was $2.75 for 4,000 shares with a fair market value of $4.50 for 2,000 shares on October 13, 1999, and $5.50 for 2,000 shares on February 26, 1999. (3) The exercise price for 48,000 shares is $1.00 and for 6,000 shares is $2.75. The fair market value was $6.063 at December 31, 1999. Stock Option Plan - ----------------- The Company has an Incentive and Non-Statutory Stock Option Plan covering 300,000 shares of Common Stock (the "Plan"). There are currently outstanding five-year options to purchase an aggregate of (i) 67,800 shares of Common Stock of the Company, exercisable at $2.75 per share (granted in 1998) and (ii) 48,000 shares at $1.00 per share (granted in 1996). The options are exercisable 20% per year with the first 20% available on August 7, 1998. ISO's and NQO's granted to an optionee terminate, 30 days after termination of employment or other relationship, except that ISO's and NQO's terminate the earlier of the expiration date of the option or six months after termination in the event of disability, and 180 days in the event of death. On February 9, 1999 the Board of Directors approved an option plan for non-employee Directors. Under the plan, non-employee Directors receive options to purchase 3,000 shares per year plus 1,000 shares per meeting attended. Such options are granted in January of each year at the quoted market price at the beginning of the previous year and must be exercised on or before five years from the date of grant. The options are granted pro rata if a director terminates during the year. During 1999, 23,000 options accrued to three Directors. The difference between the option price and the market price of the shares on the dates earned was $19,205 and has been charged to income. The market price of the Company's Common Stock at December 31, 1999 was $6.063 per share. Item 11. Security Ownership of Certain Beneficial Owners and Management - ----------------------------------------------------------------------- The following table sets forth as of December 31, 1999, the ownership of Common Stock of the Company of (i) all persons known by the Company to own beneficially 5% or more of such Common Stock, (ii) each current director and officer of the Company and (iii) all current directors and officers as a group, together with their percentage holdings at such date. The addresses of all holders of 5% or more of the Common Stock are included in the table. Number and Percent Of Shares Beneficially Owned At December 31, 1999 -------------------- Name and Address Number Percent - ---------------------------- ------ ------- MDS Nordion 5,923,626 57.42 447 March Road-Kanata Ontario Canada K2K 1X8 E. W. (Pete) Ellis 16,000 (*) Harley W. Everett 7,200 (*) Frank M. Fraser 7,000 (*) John Hammond 8,000 (*) Craig Hunter 5,923,626 57.42 David Nicholds 5,923,626 57.42 Paul O'Neill 8,000 (*) All Directors and Officers 5,969,826 57.87 as a group (7 persons) * Less than 1% (1) Includes 608,958 shares of Common Stock which are issuable upon conversion of $954,476 of indebtedness owed Nordion by the Company. See "Business - Agreements with MDS Nordion." Messrs. Hunter and Nicholds are designees of Nordion to serve on the Company's Board of Directors. Messrs. Hunter and Nicholds own less than 1% each of the Capital Stock of Nordion and they disclaim beneficial ownership of the Common Stock of the Company which Nordion owns or has the right to acquire. Approximately 100% of the outstanding shares of Nordion's common stock is owned by MDS Inc. a Canadian Corporation, whose shares are traded on the Toronto Stock Exchange and MDS Laboratories Inc, a subsidiary of MDS Inc. (2) Includes 7,000 shares underlying options which are currently exercisable or exercisable within the next sixty (60) days. (3) Includes 8,000 shares underlying options which are currently exercisable or exercisable within the next sixty (60) days. (4) Includes 8,000 shares underlying options which are currently exercisable or exercisable within the next sixty (60) days. (5) Includes shares underlying options which are currently exercisable or exercisable within the next sixty (60) days and shares underlying convertible debt. Item 12. Certain Relationships and Related Transactions - -------------------------------------------------------- See "Business-Agreements with MDS Nordion." Item 13. Exhibits and Report on Form 8-K - ---------------------------------------- (a) Exhibits -------- (1) Articles of Incorporation. Reference is made to Exhibit 3.1 included in the Company's Registration Statement on Form S-18 (File No. 33- 36838-A). (2) By-Laws. Reference is made to Exhibit 3.2 included in the Company's Registration Statement on Form S-18 (File No. 33-36838-A). (3) Agreements entered into by the Company with MDS Nordion *(a) Reimbursement and Indemnity Agreement dated October 22, 1991 *(b) Agreement dated December 11, 1991 *(c) Debenture dated January 15, 1992 *(d) Copy of Security & Mortgage Agreement dated January 15, 1992 *(e) Financing Agreement dated February 21, 1992 *(f) Security Agreement dated February 21, 1992 **(g) Letter Agreement dated March 31, 1994 and April 13, 1994. * Reference is made to Exhibit (c)(3) included in the Company's Form 10-K Report filed for the year ended December 31, 1991. ** Reference is made to Exhibit 3(g) included in the Company's Form 10-KSB Report filed for the year ended December 31, 1993. (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1999 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of the thirtieth day of March 2000. FOOD TECHNOLOGY SERVICE, INC. By: /S/ E.W. (Pete) Ellis --------------------------- E.W. (Pete) Ellis, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated: Name Title Date ---- ----- ---- /S/ E.W. (Pete) Ellis Chief Executive Officer March 30, 2000 - --------------------------- and Director E.W. (Pete) Ellis /S/ Harley W. Everett Chief Financial and March 30, 2000 - --------------------------- Accounting Officer Harley W. Everett /S/ Frank M. Fraser Director March 30, 2000 - --------------------------- Frank M. Fraser /S/ John Hammond Director March 30, 2000 - --------------------------- John Hammond /S/ R. Craig Hunter Director March 30, 2000 - --------------------------- R. Craig Hunter /S/ David Nicholds Director March 30, 2000 - --------------------------- David Nicholds /S/ Paul O'Neill Director March 30, 2000 - --------------------------- Paul O'Neill FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) INDEX TO FINANCIAL STATEMENTS Report of Independent Certified Public Accountants Financial Statements Balance Sheets - December 31, 1999 and 1998 Statements of Operations - Years Ended December 31, 1999, 1998 and 1997 and from December 11, 1985 (Inception) through December 31, 1999 Statement of Stockholder's Equity - December 11, 1985 (Inception) through December 31, 1999 Statements of Cash Flows - Years ended December 31, 1999, 1998, and 1997 and from December 11, 1985 (Inception) through December 31, 1999 Notes to Financial Statements REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To The Board of Directors and Stockholders Food Technology Service, Inc. We have audited the accompanying balance sheets of Food Technology Service, Inc. (a Development Stage Company) as of December 31, 1999 and 1998 and the related statements of operations, Stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Food Technology Service, Inc. as of December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company is in the development stage and has not received significant revenue and has incurred losses since inception. Accordingly, there is substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note B. The financial statements do not include adjustments that might result from the outcome of this uncertainty. We previously audited the balance sheets at years ended December 31, 1985 through 1996 and the related statements of operations, Stockholders' equity, and cash flows for the years then ended (none of which are presented herein) and we expressed a qualified opinion because of the substantial doubt about the Company's ability to continue as a going concern. The cumulative data from December 11, 1985 (inception) through December 31, 1999 appearing on the statements of operations, Stockholders' equity and cash flows has been compiled from such financial statements and the statements presented herein. In our opinion, the cumulative data is fairly stated in all material respects in relation to the financial statements from which it was derived. FAIRCLOTH & ASSOCIATES, P.A. Tampa, Florida February 29, 2000 FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS December 31, 1999 1998 ---------- ---------- ASSETS ------ Current Assets: Cash $20,937 $6,046 Accounts Receivable 51,125 22,824 Due from Employees 66,175 Inventory 3,886 8,452 --------- ---------- Total Current Assets 142,123 37,322 Property and Equipment: Building 2,883,675 2,883,675 Cobalt 1,310,272 1,310,272 Furniture and Equipment 1,659,854 1,659,149 Less Accumulated Depreciation (2,482,167) (2,216,725) ---------- ---------- 3,371,634 3,636,371 Land 171,654 171,654 ---------- ---------- Total Property and Equipment 3,543,288 3,808,025 Other Assets: 5,000 5,000 ---------- ---------- Total Assets $3,690,411 $3,850,347 ========== ========== SEE NOTES TO FINANCIAL STATEMENTS FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS December 31, 1999 1998 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts Payable $48,513 $57,625 Revolving credit line 250,000 75,000 ---------- ---------- Total Current Liabilities 298,513 132,625 Financing Agreement and Debenture Payable 954,476 850,201 Stockholders' Equity: Common Stock $.01 Par Value, Authorized 20,000,000 Shares, Outstanding 10,316,201 Shares in 1999 and 10,090,001 in 1998 103,162 100,900 Paid-In Capital 11,438,631 10,982,963 Deficit Accumulated During Development Stage (9,104,371) (8,216,342) ---------- ---------- 2,437,422 2,867,521 Commitments and Contingencies (Note B and I) Total Liabilities and Stockholders' Equity $3,690,411 $3,850,347 ========== ========== SEE NOTES TO FINANCIAL STATEMENTS FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS December 11, 1985 (Inception) Year Ended Through December 31, December 31, 1997 1998 1999 1999 ---------- ---------- ---------- ---------- Net Sales $191,291 $562,552 $387,966 $2,160,877 ---------- ---------- --------- --------- Processing Costs 241,597 323,918 304,028 2,384,781 General, Administrative and Development 435,871 539,421 588,724 5,196,829 Depreciation 284,856 274,449 265,442 2,487,741 Interest Expense 291,336 75,337 92,403 1,729,424 ---------- ---------- --------- ---------- 1,253,660 1,213,125 1,250,597 11,798,775 ---------- ---------- --------- ---------- Loss from Operations (1,062,369) (650,573) (862,631) (9,637,898) Other Income (Loss): Interest Income 3 188,897 Miscellaneous 14,400 Foreign Exchange 99,913 29,117 (25,398) 434,719 Equity in Net Loss of Affiliate (44,527) (104,489) ---------- ---------- ---------- ---------- Loss before Income Taxes (1,006,980) (621,456) (888,029) (9,104,371) Income Taxes 0 0 0 0 ---------- ---------- ---------- ---------- Net Loss ($1,006,980) ($621,456) ($888,029) ($9,104,371) ========== ========== ========== ========== Net Loss Per Common Share ($0.16) ($0.06) ($0.09) ($0.89) ========== ========== ========== ========== SEE NOTES TO FINANCIAL STATEMENTS FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS December 11, 1985 (Inception) Year Ended Through December 31, December 31, 1997 1998 1999 1999 ---------- ---------- ---------- ----------- Cash Flows from Operations: Cash Received from Customers $193,698 $566,234 $358,341 $2,103,261 Interest Received 3 188,897 Interest Paid (793) (2,346) (13,526) (30,919) Cash Paid for Operating Expenses (624,924) (891,536) (872,219) (7,175,071) -------- -------- -------- ---------- (432,016) (327,648) (527,404) (4,913,8320 Cash Flows from Investing: Land Acquisition (171,654) Construction in Progress (2,663,116) Deposits (5,000) Collection of Notes Receivable 489,300 Purchase of Equipment (4,638) (4,269) (705) (3,209,637) Sale of Equipment 10,500 -------- -------- ------- ---------- (4,638) (4,269) (705) (5,549,607) Cash Flows from Financing Activities: Proceeds from Sale of Common Stock 267,781 30,000 368,000 6,356,135 Offering Costs (483,959) Proceeds from Borrowing 155,000 295,732 175,000 4,684,650 Payment of Loans (52,450) Purchase of Common Stock (20,000) -------- -------- -------- --------- 422,781 325,732 543,000 10,484,376 Net Increase (Decrease) in Cash (13,873) (6,185) 14,891 20,937 Cash at Beginning of Year 26,104 12,231 6,046 -------- -------- -------- --------- Cash at End of Year $12,231 $6,046 $20,937 $20,937 ======== ======== ======== ========= SEE NOTES TO FINANCIAL STATEMENTS FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS December 11, 1985 (Inception) Year Ended Through December 31, December 31, 1997 1998 1999 1999 --------- --------- --------- ------------ Reconciliation of Net Loss to Net Cash Used by Operations: Net Loss ($1,006,980) ($621,456) ($888,029) ($9,104,371) Adjustments to Reconcile Net Loss to Cash Used: Depreciation 284,856 274,449 265,442 2,487,741 Loss on Sale of Equipment 2,877 Imputed Interest on Financing Agreement 432,199 Foreign Exchange (Gain) Loss (99,913) (29,117) 25,398 (434,719) (Increase) Decrease in Receivables 5,586 11,921 (28,301) (51,124) (Increase) Decrease in Inventory (8,452) 4,566 (3,886) Increase (Decrease) in Payables and Accruals 62,643 15,007 (9,112) 169,785 Value Ascribed to Stock Issued for Services and Int. 277,265 30,000 102,632 1,483,177 Equity in Net Loss of Affiliate 44,527 104,489 ----------- ---------- --------- ---------- Net Cash Used by Operating Activities ($432,016) ($327,648) ($527,404) ($4,913,832) =========== ========== ========= ========== Supplemental schedule of noncash investing and financing activities. In 1991 and 1992 the Company purchased $2,800,383 of equipment and cobalt under the terms of a financing agreement for $2,400,383 and $400,000 in cash (Notes C and D). During 1995, 1996 and 1997 the Company issued common stock for debt in the amounts of $65,000, $330,000 and $2,880,000 respectively (Note F). During 1999 the Company issued common stock for receivables of $66,175. SEE NOTES TO FINANCIAL STATEMENTS FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF STOCKHOLDERS' EQUITY Common Paid-In Stock Capital Deficit ---------- ---------- --------- December 11, 1985 (Inception) to December 31, 1996: Sale of 2,035,000 Shares of Stock in January 1986 for $37,435 in Cash, $36,000 in Notes and for Services $20,350 $58,120 Sale of 77,000 Shares of Stock in January and February 1986 for $192,500 in Cash 770 191,730 Purchase of 8,000 Shares of Stock for $20,000 (80) (19,920) Sale of 69,000 Shares of Stock for $690 to Investors who Previously Purchased Stock for $2.50 per Share 690 Surrender of 338,500 Shares by Founding Shareholders for No Compensation in 1988 (3,385) 3,385 Sale of 451,500 Shares of Stock for $1,354,500 in Cash and Notes in 1989 4,515 1,349,985 Sale of 483,321 Shares of Stock for $2,166,508 in Cash in 1990 4,833 2,161,675 Offering Cost to Sell Stock (422,460) Sale of 228,474 Shares of Stock for $1,440,825 in Cash and Services in 1992 and 1993 2,285 1,438,540 Offering Cost to Sell Stock (50,250) Sale of 37,808 Shares of Stock for $214,850 in Cash and Services in 1994 378 214,472 Issuance of 17,416 Shares of Stock for Stock in Nations Pride in 1994 174 104,320 Sale of 733,659 Shares of Stock for $591,401 in Cash and Services in 1995 7,337 584,064 Offering Cost to Sell Stock (25,500) -------- --------- Balance Forward $37,867 $5,588,161 ======== ========= SEE NOTES TO FINANCIAL STATEMENTS FOOD TECHNOLOGY SERVICE, INC (A DEVELOPMENT STAGE COMPANY) STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED) Common Paid-In Stock Capital Deficit ---------- ---------- --------- Balance Forward $37,867 $5,588,161 Exchange of 612,945 shares for $892,257 of Debt and Accrued Interest in 1995 6,129 886,128 Sale of 517,531 Shares of Stock for $414,025 in Cash in 1996 5,175 408,850 Exchange of 833,130 shares for $666,505 of Debt and Accrued Interest in 1996 8,332 658,173 Net Loss, December 11, 1985 (Inception) to December 31, 1996 ($6,587,906) --------- ---------- ---------- Balance, December 31, 1996 57,503 7,541,312 (6,587,906) Sale of 399,102 Shares of Stock for $302,781 in Cash and Services 3,991 298,790 Exchange of 3,902,830 shares for $3,122,265 of Debt and Accrued Interest 39,028 3,083,237 Net Loss for Year (1,006,980) --------- ---------- ---------- Balance, December 31, 1997 100,522 10,923,339 (7,594,886) Sale of 37,785 Shares of Stock for $60,000 in Cash and Services 378 59,624 Net Loss for Year (621,456) --------- ---------- ---------- Balance, December 31, 1998 100,900 10,982,963 (8,216,342) Sale of 226,200 Shares of Stock for $438,725 in Cash and Services 2,262 436,463 Directors Stock Option Compensation 19,205 Net Loss for Year (888,029) --------- ---------- ---------- Balance, December 31, 1999 $103,162 $11,438,631 ($9,104,371) ========= ========== ========== SEE NOTES TO FINANCIAL STATEMENTS FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 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 to engage in the business of operating a gamma irradiation facility using Cobalt 60 to extend the shelf life of and/or disinfect fruits, vegetables and meat products and for the sterilization of medical, surgical, pharmaceutical and packaging materials. Since its inception, the Company has been devoting its efforts to research and development, planning for and construction of facilities, planning for operations, raising capital and informing agricultural interests and other potential users of the Company's intentions and progress. During 1992, the plant was completed and commenced operations. However, revenues to date have not been significant. Accordingly, the Company is considered to be a development stage Company. All operating costs have been expensed as incurred during the development stage. 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. Fair Value of Financial Instruments The fair value of financial instruments has been valued at the prevailing prime interest rate plus 1%. The fair value approximates the carrying amount of long term debt. 4. Revenue Recognition Sales are recorded by the Company when the customer's product has been processed. FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note A - Summary of Significant Accounting Policies (continued): 5. Research and Development Costs Research and development costs are charged to expense as incurred. Such costs have not been significant to date. 6. Depreciation Assets other than Cobalt have been depreciated using the straight-line method over the following lives for both financial statement and tax purposes: Building 31.5 Years Furniture and Equip 5-15 Years 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 Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", as of January 1, 1996. This Statement had no impact on the Company's 1997, 1998 or 1999 results of operations or financial position. 7. Foreign Exchange Debt payable in Canadian currency has been translated at the Exchange Rates in effect at the Balance Sheet dates and any gain or loss has been included in results of operations. 8. Offering Costs Costs incurred with the offering of securities have been charged to equity. 9. Net Loss Per Share Basic net loss per share is computed using the weighted average number of common shares outstanding. Diluted earnings per share are not presented because the result of using common stock equivalents in the computation is antidilutive. FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note B - The Company as a Going Concern: The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company is in the development stage and has not received significant revenues and has incurred significant expenses to further this development. Management is of the opinion that the Company will continue operations through December 31, 2000 based on the following plans and events: The Company's supplier (Notes C and D) and major creditor, MDS Nordion, Inc., has guaranteed a line of credit of $500,000 from a bank. At December 31, 1999, $250,000 of this amount is available to fund 2000 operations. In February, 1999 the Company entered into an agreement with a beef and poultry distributor in an attempt to increase sales. The impact of this contract cannot be determined at this time. Pursuant to this agreement on December 1, 1998 the Company granted options to purchase 150,000 shares of the Company's common stock to the distributor's shareholders. On February 26 ,1999 such options were exercised for $286,125 in cash (See Note I) The Company can began processing certain meat products on February 23, 2000 under the provisions of new USDA regulations. The Company anticipates that revenues from processing meat and other products together with its unused credit line of $250,000 will be sufficient to cover operating costs through December 31, 2000. However there is no assurance that the anticipated revenues will be received. Note C - Equipment and Cobalt Purchase: As of December 31, 1991, the Company had purchased necessary equipment and Cobalt 60 from MDS Nordion, Inc. to commence plant operations for $400,000 in cash and a non-interest bearing note for $1,932,604 from MDS Nordion, Inc. On January 15, 1992, an additional supply of Cobalt 60 was shipped for a non-interest bearing note for $899,978. For accounting purposes, these notes and the related equipment and Cobalt amounts were discounted by $432,199. Such discounts were amortized as interest expense over the original life of the notes as follows: 1992 $165,957 1993 160,256 1994 105,986 -------- $432,199 ======== On April 13, 1994 as partial consideration for extending the due date of the notes, the Company agreed to begin accruing interest at 1% over prime on September 4, 1994. FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note D - Financing Agreement: Financing agreement to supplier for $546,791 (Canadian) $378,598 (U.S.) due January 5, 2001 plus interest at 1% over prime. $378,598 Cash advances from supplier made during 1997 and 1998 375,732 Accrued interest 200,146 -------- $954,476 ======== All interest accrued through September 30, 1997 has been converted into common stock of the Company (Note F). The financing agreement is payable in Canadian currency. Accordingly, future fluctuations in exchange rates will effect the balance due in U.S. dollars resulting in foreign exchange gains or losses. On November 23, 1994 the supplier agreed to extend the due date of the debt to January 4, 1996. As part of the consideration for extending the due date, the holder could, at any time, convert all or any portion of the debt at a lower of $4.05 per share, or the then current market price. In early 1996, the supplier further agreed to extend the due date of the debt to January 4, 1997 and the conversion price was changed to the lower of $.80 or the then current market price. Subsequently the supplier agreed to further extend the due date of the debt to January 5, 2001 The cash advances are convertible into common stock of the Company at 70% of the market value at date of conversion. All sums advanced by the supplier, including accrued interest are collateralized by all assets of the Company. Note E - Income Taxes: The Company has unused operating loss carryforwards available at December 31, 1999 of $9,026,070 for tax purposes and $9,087,290 for financial reporting purposes. The loss carry-forwards expire as follows: FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note E - Income Taxes (continued): Amount Year Tax Book ---- -------- --------- 2001 $28,141 $28,141 2002 45,859 45,859 2003 73,687 73,687 2004 23,345 23,345 2005 77,909 77,909 2006 400,332 400,332 2007 1,352,015 1,352,015 2008 1,297,455 945,703 2009 1,239,590 1,239,696 2010 1,262,386 1,327,385 2011 1,048,800 1,066,986 2012 688,497 1,006,131 2018 647,342 618,226 2019 840,712 881,875 ---------- ---------- $9,026,070 $9,087,290 ========== ========== Deferred income taxes reflect the estimated tax effect of temporary differences between assets and liabilities for financial reporting purposes and those amounts as measured by tax laws and net operating losses. The components of deferred income tax assets and liabilities at December 31, 1998 and 1999 were as follows: 1998 1999 ---- ---- Net operating loss carryforwards $3,087,698 $3,396,510 Foreign exchange (32,775) (23,217) Stock option compensation 0 5,932 Equity in loss of affiliate 39,319 39,319 --------- --------- Net deferred tax assets 3,094,242 3,418,544 Less - Reserve (3,094,242) (3,418,544) $ -0- $ -0- ========== ========== The net deferred tax assets have been fully reserved because there is less than a 50% chance that they will be utilized. FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note F - Stock Offerings: During 1997 the Company issued 4,221,932 of its unregistered common shares at $.80 per share to its Cobalt supplier for $255,281 cash, $242,265 accrued interest and $2,880,000 debt. In addition 70,000 shares were issued for services and $35,000 was charged to operations. Also the shareholders approved an increase in the number of authorized shares from 10 to 20 million to facilitate these transactions. During 1998 the Company sold 3,333 unregistered shares for $10,000 in cash to an individual and 20,000 shares for $20,000 in cash to its President pursuant to an employment agreement. In addition 14,286 shares were issued for legal services and $30,000 was charged to operations. Also, 166 shares were exchanged for 2,000 shares of an affiliate. During 1999 the Company sold 150,000 shares for $286,125 in cash to a beef and poultry distributor. In addition 74,200 shares were sold for $148,050 in cash and receivables pursuant to stock option plans. Also 2,275 shares with an ascribed value of $4,550 were donated to an educational institution. All shares issued for services have been ascribed the market value on the dates they were earned. Note G - Stock Purchase Warrants and Stock Options: The Company's policy is to issue warrants and options at or above the market value on the issue date, except for non-employee Directors. Accordingly, compensation has been recorded for warrants or options granted only to such Directors. On November 9, 1993 the Company granted its former President warrants to purchase 100,000 shares of stock at $8.25 per share. Such warrants expired in 1998 and 1999. On November 11, 1996 the Company agreed to issue its President 10,000 shares for services. The Company also granted to him options to purchase up to 20,000 shares of stock per year at $1 per share during the five year period ending December 8, 2001. Such options were exercised 20,000 shares in 1998 and 36,000 shares in 1999. On May 18, 1992, the Stockholders approved the 1992 Incentive and Non-Statutory Stock Option Plan (the "1992 Plan"). The 1992 Plan is administered by the Board of Directors who are authorized to grant incentive stock options ("ISO's") or non-qualified options ("NQO's"), to Officers and employees of the Company and for certain other individuals providing services to or serving as Directors of the Company. The maximum number of shares of the Company's Common Stock that may be issued under the 1992 Plan is 300,000 shares. FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note G - Stock Purchase Warrants and Stock Options (continued): 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 1992 Plan shall not exceed $100,000. Any option granted in excess of the foregoing limitation shall be specifically designated as being a NQO. On August 25, 1992, the Board of Directors authorized and issued options to buy 122,000 shares at $8.75 per share. On August 7, 1998 the remaining 78,000 of these options were canceled and new options to purchase 105,000 shares at $2.75 per share were issued. Such price was the market value on August 7, 1998, accordingly, no compensation was charged to operations. The options are exercisable 20% of the authorized amount immediately and 20% in each of the following four years. ISO's and NQO's granted to an optionee terminate 30 days after termination of employment or other relationship, except that ISO's and NQO's terminate the earlier of the expiration date of the option or 180 days in the event of death or disability. On February 9, 1999 the Board of Directors approved an option plan for non-employee Directors. Under the plan, non-employee Directors receive options to purchase 3,000 shares per year plus 1,000 shares per meeting attended. Such options are granted in January of each year at the quoted market price at the beginning of the previous year and must be exercised on or before five years from the date of grant. The options are granted pro rata if a director terminates during the year. During 1999, 23,000 options accrued to three Directors. The difference between the option price and the market price of the shares on the dates earned was $19,205 and has been charged to income. Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" was implemented in January, 1996. As permitted by the Standard, the Company retained its prior method of accounting for stock compensation. If the accounting provisions of Statement No. 123 had been adopted, the net impact on the 1999, 1998 and 1997 net income would not have been material. FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note G - Stock Purchase Warrants and Stock Options (continued): Changes that occurred in options and warrants outstanding in 1999, 1998 and 1997 are summarized below: 1999 1998 1997 ---- ---- ---- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------- -------- ------- -------- ------ -------- Outstanding at beginning of year 403,000 $2.30 273,000 $5.73 285,500 $5.86 Granted 273,000 $2.29 Exercised (224,200) $1.94 (20,000) $1.00 Expired/canceled (63,000) $7.12 (123,000) $8.55 (12,500) $8.75 Outstanding at end of year 115,800 $2.02 403,000 $2.06 273,000 $5.73 Exercisable at end of year 6,000 $2.75 200,000 $3.21 193,000 $7.69 Note H - Related Party Transactions: The Company's supplier of Cobalt and holder of long-term debt, MDS Nordion, Inc. (Nordion) owns over 50% of the Company's outstanding common stock. See Notes C and D for purchases of Cobalt and related debt and financing. Also see Note F for stock offerings for debt, interest and cash. FOOD TECHNOLOGY SERVICE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 Note H - Related Party Transactions (continued): On September 25, 1992 Nordion stored approximately 2,600,000 curies of cobalt at the Company's plant. Subsequently 700,000 curies were returned and 1,460,000 curies decayed, leaving approximately 440,000 curies at the Company's plant. Such cobalt was stored in anticipation that it would be needed in the Company's operations: however, such cobalt has not been needed because of low processing volume due to the lack of necessary Governmental approvals and marketing demand. Due to the physical layout of the Company's plant, all product processed was exposed to Nordion's cobalt. If Nordion's cobalt had been owned by the Company, or had been required for increased processing volume or speed, the decay of such cobalt would have been charged to operations, resulting in an increased expense of approximately $230,000, $200,000 and $150,000 for the years ended December 31, 1997, 1998 and 1999, respectively (approximately $1,980,000 from inception through December 31, 1999). The net losses for such periods would have been $1,236,981, $821,456 and $1,018,824 respectively ($11,065,166 from inception through December 31, 1999). At such time that the Company's operations increase to such an extent that the Nordion cobalt is required for increased processing volume or speed, the Company will begin charging its decay to operations. Note I - Commitments and Contingencies: In February, 1999 the Company entered into an agreement with a beef and poultry distributor to provide meat and poultry irradiation services. During February 1999 under the terms of the agreement the Company sold 150,000 shares of its common stock to the stockholders of the distributor for $286,125 in cash. In addition the Company agreed to grant stock options of up to 105,000 shares at $2.75 per share. Such options will be granted in 10,000 share increments based on 10,000 share options for each $200,000 in sales to the beef and poultry distributor for irradiation services during the two year period ending November 30, 2000. If the agreement is still in effect on November 30, 2000 the Company agreed to grant to the stockholders of the distributor additional stock options equal to the number of options they exercised in the previous two years. The exercise price of such options will be the average closing price of the Company's common stock for the previous 20 trading days. No sales resulted from this agreement during 1999, accordingly no options were granted. EX-27 2 ARTICLE 5 SCHEDULE YEAR ENDED DECEMBER 31, 1999
5 1 JAN-01-1999 DEC-31-1999 YEAR DEC-31-1999 20,937 0 117,300 0 3,886 142,123 6,025,455 2,482,167 3,690,411 298,513 954,476 0 0 103,162 2,334,260 3,690,411 387,966 387,966 0 1,158,194 25,398 0 92,403 (888,029) 0 0 0 0 0 (888,029) (.09) (.09)
-----END PRIVACY-ENHANCED MESSAGE-----