Attached files
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2011
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)
Registrant's telephone number, including area code (863) 425-0039
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 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 ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Class March 31, 2011
------- ----------------
Common Stock $.01 Par Value 2,756,458 shares
FOOD TECHNOLOGY SERVICE, INC.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 2011 and
December 31, 2010 2 - 3
Statements of Operations - Three Months Ended
March 31, 2011 and 2010 4
Statements of Cash Flows - Three Months Ended
March 31, 2011 and 2010 5
Notes to Financial Statements 6 - 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Item 4T. Controls and Procedures 18
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits 19
SIGNATURES 20
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
FOOD TECHNOLOGY SERVICE, INC.
BALANCE SHEETS
March 31, December 31,
2011 2010
------------ ------------
(Unaudited) (Audited)
ASSETS
------
Current Assets:
Cash $ 1,649,941 $ 1,294,540
Accounts Receivable, Less Allowance for
Doubtful Accounts of $5,000 and $2,500 412,221 354,489
Prepaid Expenses 48,955 24,856
Deferred Tax Asset 394,700 369,200
------------ ------------
Total Current Assets 2,505,817 2,043,085
------------ ------------
Property, Plant and Equipment:
Buildings 3,282,029 3,282,029
Cobalt 5,039,706 4,486,283
Furniture and Equipment 1,992,489 1,981,525
Less: Accumulated Depreciation (6,471,620) (6,366,316)
------------ ------------
3,842,604 3,383,521
Land 171,654 171,654
------------ ------------
Total Property, Plant and Equipment 4,014,258 3,555,175
------------ ------------
Other Assets:
Deferred Tax Asset 871,400 987,300
Utility Deposits 5,000 5,000
Prepaid Cobalt - 512,978
Loan Fees - net 20,371 14,955
------------ ------------
Total Other Assets 896,771 1,520,233
------------ ------------
Total Assets $ 7,416,846 $ 7,118,493
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
FOOD TECHNOLOGY SERVICE, INC.
BALANCE SHEETS
March 31, December 31,
2011 2010
------------ ------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts Payable $ 12,948 $ 9,783
Accrued Liabilities 86,906 16,273
------------ ------------
Total Current Liabilities 99,854 26,056
------------ ------------
Stockholders' Equity:
Common Stock $.01 Par Value, Authorized
5,000,000 Shares, Issued and Outstanding
2,756,458 shares 27,564 27,564
Paid-In Capital 12,237,303 12,227,059
Deficit (4,929,384) (5,143,695)
------------ ------------
7,335,483 7,110,928
Less, 5,154 Treasury Shares at Cost (18,491) (18,491)
------------ ------------
Total Stockholders' Equity 7,316,992 7,092,437
------------ ------------
Total Liabilities and Stockholders'
Equity $ 7,416,846 $ 7,118,493
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
FOOD TECHNOLOGY SERVICE, INC.
STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
2011 2010
------------ ------------
(Unaudited) (Unaudited)
Net Revenues $ 859,892 $ 661,824
------------ ------------
Costs and Operating Expenses
Processing Costs 133,820 114,293
Selling, General and Administrative 309,601 229,783
Depreciation and Amortization 112,106 91,201
------------ ------------
Total Costs and Operating Expenses 555,527 435,277
------------ ------------
Income from Operations 304,365 226,547
Interest Income 346 1,044
------------ ------------
Income before Income Taxes 304,711 227,591
Income Tax - Deferred (90,400) (85,600)
------------ ------------
Net Income $ 214,311 $ 141,991
============ ============
Net Income Per Common Share
-Basic $ 0.078 $ 0.052
-Diluted $ 0.071 $ 0.050
Weighted Average Number of Common Shares
Used in Computation
-Basic 2,756,458 2,756,458
-Diluted 2,998,458 2,849,458
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
FOOD TECHNOLOGY SERVICE, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
2011 2010
------------ ------------
(Unaudited) (Unaudited)
Cash Flows from Operations:
Cash Received from Customers $ 802,160 $ 601,935
Interest Received 346 1,044
Cash Paid for Operating Expenses (383,477) (337,421)
------------ ------------
Net Cash Provided by Operations 419,029 265,558
Cash Flows from Investing Activities:
Loan Fees (12,219) -
Purchase of Equipment (10,964) -
Cobalt Delivery & Installation (40,445) -
------------ ------------
Net Cash (Used) in Investing (63,628)
Net Increase in Cash 355,401 265,558
Cash at Beginning of Period 1,294,540 610,311
------------ ------------
Cash at End of Period $ 1,649,941 $ 875,869
============ ============
Reconciliation of Net Income to
Net Cash Provided by Operations:
Net Income $ 214,311 $ 141,991
Adjustments to Reconcile
Net Income to Cash Provided:
Amortization 6,803 -
Deferred Income Taxes 90,400 85,600
Depreciation 105,304 91,201
Non Cash Payments of Salaries 10,244 11,223
(Increase)/Decrease in Receivables (57,732) (59,889)
(Increase)/Decrease in Prepaid Expenses (24,099) (17,534)
Increase/(Decrease) in Accounts Payables 3,165 -
Increase/(Decrease) in Accrued Liabilities 70,633 12,966
------------ ------------
Net Cash Provided by Operations $ 419,029 $ 265,558
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
Note A - Basis of Presentation
The accompanying financial statements of Food Technology Service, Inc. (the
"Company," "we" or "our") have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission and the instructions to
Form 10-Q and, therefore, do not include all information and footnotes normally
included in financial statements prepared in accordance with generally accepted
accounting principles. These interim financial statements should be read in
conjunction with the financial statements and notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2010.
In the opinion of management, these financial statements reflect all
adjustments, including normal recurring adjustments, necessary for a fair
presentation of the financial position as of March 31, 2011, and the results of
operations and cash flows for the interim periods presented. Operating results
for the three-month period ended March 31, 2011, are not necessarily indicative
of the results that may be expected for the full year. We have evaluated
subsequent events for recognition or disclosure through the date this Form 10-Q
is filed with the Securities and Exchange Commission.
Note B - 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 Cobalt. Net
Revenue is the gross income from such processing less allowances, if any.
Revenues are recorded after the Company's performance obligation is completed
and product has been processed in accordance with the customer's specifications
and collection of the resulting receivable is probable.
6
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
Note B - Summary of Significant Accounting Policies (continued)
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
uncollectable.
5. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Assets other than Cobalt have
been depreciated using the straight-line method over the following lives for
both financial statement and tax purposes:
Building 31.5 Years
Furniture and Equipment 5-15 Years
The total cost basis of Cobalt has been depreciated using engineering
estimates from published tables under which one-half of the remaining value is
written off over 5.26 year periods.
Estimated useful lives are periodically reviewed and if warranted, changes
will be made resulting in acceleration of depreciation.
Nordion is the Company's supplier of Cobalt 60. When we purchased the Cobalt,
Nordion agreed to accept the return of all Cobalt 60 that has reached the end
of its useful life; therefore, the Company has provided no environmental
remediation liability for the disposal of the Cobalt 60.
6. Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or
ess 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 had no uninsured cash balances at March
31, 2011 and December 31, 2010.
7
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
Note B - Summary of Significant Accounting Policies (continued)
8. Net Income Per Share
Basic net income per share is computed using the weighted average number of
common shares outstanding. Diluted net income per share is computed by the
weighted average number of common shares outstanding, plus the effect of common
stock equivalents that are dilutive.
9. Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, prepaid expenses, deposits,
accounts payable, 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 I -
Stock Options) Compensation cost under the plans is recognized using the fair
value recognition provisions of FASB ASC 718. Such cost is recognized for
shares expected to vest on a straight-line basis over the requisite service
period of the award using the Black-Scholes option-pricing model.
11. Advertising
The Company expenses all advertising costs when incurred. Advertising expense
was $3,072 and $1,398 for the first quarter ended March 31, 2011 and 2010,
respectively.
Note C - Certificate of Deposit
As of January 2011 the certificate of deposit was not renewed.
Note D - Loan Fees
As of March 31, 2011 renewal fees in the amount of $12,219 were incurred in
connection with the Regions letter of credit (See Note F - Letter and Line of
Credit) for a total of $34,973. Amortizations of these fees were based on the
life of the loans. Amortization expense for the first quarter ended March 31,
2011 and 2010 were $6,803 and $0, respectively.
Note E - Prepaid Cobalt
In November 2010 the Company paid $512,978 to Nordion (See Note J - Related
Party) for the delivery of 200,000 curies of Cobalt in early 2011. The delivery
was received and placed in service in January 2011.
8
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
Note F - Letter and Line of Credit
The Company no longer uses Nordion to guarantee a $600,000 letter of credit
required by the State of Florida as a condition of the Company's Radioactive
Materials License. In July, 2010, the Company obtained an irrevocable standby
letter of credit of $600,000 through Regions Bank to satisfy State of Florida
requirements. The letter of credit will be automatically extended for an
additional year unless the bank provides a 120 day written notice to the
Company. The letter of credit is collaterized by the Company's real property
and has an annual fee of $12,219.
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 property and incurs interest at prime plus
1.35%. As of March 31, 2011 the Company has not used the line of credit.
Note G - Income Taxes and Available Tax Loss Carryforwards
The components of income tax benefit are as follows:
Three Months Ended
March 31,
2011 2010
----------- -----------
Current
Federal $ - $ -
State - -
----------- -----------
$ - $ -
=========== ===========
Deferred-benefit
Federal $ 77,200 $ 73,100
State 13,200 12,500
----------- -----------
Total benefit
for income taxes $ 90,400 $ 85,600
=========== ===========
Income taxes for the first quarter ended March 31, 2011 and 2010 differ from
the amounts computed by applying the effective income tax rates of 37.63% and
37.63%, respectively, to income before income taxes as a result of the
following:
9
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
Note G - Income Taxes and Available Tax Loss Carryforwards (continued)
Three Months Ended
March 31,
2011 2010
----------- -----------
Expected provision at US statutory rate $ 103,600 $ 73,100
State income tax net of federal benefit 11,100 12,500
Nondeductible expenses 200 -
Change in estimates and available NOL
carryforwards 1,000 -
Change in valuation allowance (25,500) -
----------- -----------
Income tax (benefit) $ 90,400 $ 85,600
=========== ===========
The Company had income tax net operating loss ("NOL") carryforwards for federal
income tax purposes. The NOL will expire in various years ending through the
year 2030.
The components of the Company's carryforwards are as follows:
March 31, December 31,
2011 2010
------------ ------------
NOL carryforward - Beginning
of period $ 3,672,530 $ 4,933,066
Less used (308,152) (1,099,151)
Less expired - (161,385)
------------ ------------
NOL carryfoward - End of period $ 3,364,378 $ 3,672,530
============ ============
The components of the Company's deferred tax assets are as follows:
March 31, December 31,
2011 2010
------------ ------------
NOL carryforward $ 1,266,100 $ 1,382,000
Less valuation allowance - (25,500)
------------ ------------
Deferred Benefit $ 1,266,100 $ 1,356,500
============ ============
10
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
Note G - Income Taxes and Available Tax Loss Carryforwards (continued)
The change in the valuation allowance is as follows:
December 31, 2010 (25,500)
March 31, 2011 -
------------
Change in valuation allowance 25,500
============
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.
A valuation allowance has been established to eliminate the net deferred tax
benefit due to uncertainty as to whether the tax benefits would ever be
realized. During 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.
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.
These amounts have been presented in the financial statements as follows:
March 31, December 31,
2011 2010
------------ ------------
Current $ 394,700 $ 369,200
Non-Current 871,400 987,300
--- -------- ------------
Net Deferred tax asset $ 1,266,100 $ 1,356,500
============ ============
The Company's tax years 2007 through 2009 remain open to examination by taxing
jurisdictions.
11
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
Note H - 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 six months notice
is received before the President leaves. As of March 31, 2011 an accrual of
$42,000 is recorded in relation to the resignation clause.
Note I - Stock Options
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 Shares
---- -------
2009 11,500
2010 11,500
-------
23,000
=======
The aggregate fair market value (determined at the time an ISO is granted) of
the Common Stock with respect to which ISO's are exercisable for the first time
by any person during any calendar year under the Plans shall not exceed
$100,000.
The ISO's are exercisable 20% of the authorized amount immediately and 20% in
each of the following four years. ISO's granted to an optionee terminate 30 to
90 days after termination of employment or other relationship, except that ISO's
terminate the earlier of the expiration date of the option, or 90 to 180 days in
the event of death and 180 days to one year in the event of disability.
A summary of the status of the Company's stock options as of March 31, 2011 and
changes during the three months ended March 31, 2011 is as follows:
12
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
Note I - Stock Options (continued)
Wtd.Avg.
Number Wtd.Avg. Remaining
of Exercise Contractual
Shares Price Life (Yrs)
-------- ------ ---------
Outstanding at December 31, 2010 242,000 $ 2.43
Granted -- --
Exercised -- --
Expired/forfeited -- --
-------- ------
Outstanding at March 31, 2011 242,000 $ 2.43 2.77
======== ====== ======
Vested/exercisable at March 31, 2011 182,000 $ 2.63 2.08
======== ====== ======
A summary of the status of the Company's nonvested stock options as of March
31, 2011 and changes during the three months ended March 31, 2011 is as follows:
Number Wtd. Avg.
of Grant Date
Shares Fair Value
-------- ----------
Nonvested at December 31, 2010 64,500 $0.58
Granted - -
Vested (4,500) $1.14
-------- ----------
Nonvested at March 31, 2011 60,000 $0.55
======== ==========
Expired/Forfeited during the period - -
======== ==========
The Company estimated the fair value at the date of grant using the Black
Scholes option valuation model with the following assumptions:
Three Months Ended
March 31,
2011 2010
-------- --------
Risk free interest rate 2.24% 1.98%
Expected volatility 85% 81%
Expected life 5 years 5 years
Dividend yield 0% 0%
Weighted average grant
date fair value NA NA
13
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
Note I - Stock Options (continued)
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.
The Company recognized $10,244 and $11,223 stock-based compensation expense for
the first quarter ended March 31, 2011 and 2010, respectively.
As of March 31, 2011, there was $25,966 of unrecognized compensation costs
related to non-vested stock options, which will be amortized to expense over
future periods. The Company expects to recognize that cost over the weighted
average vesting period 1.20 years.
Note J - 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 recently purchased the following Cobalt from Nordion:
Year Curies Amount
---- ------- --------
2010 105,757 81,740
2011 200,000 512,978
In November 2010, the Company paid Nordion approximately $510,000 to purchase
Cobalt for delivery during the first quarter of 2011. This prepayment allowed
the Company to receive a discount on the price of the Cobalt. The Cobalt was
delivered as scheduled in January 2011.
Note K - Earnings Per Share
Earnings per share is calculated in accordance with ASC 260-10, "Earnings Per
Share". Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the years. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or
converted into common shares. Common share equivalents are excluded from the
computation of diluted earnings per share if their effects would be anti-
dilutive.
14
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
Note K - Earnings Per Share (continued)
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:
Three Months Ended
March 31,
2011 2010
---------- ----------
Numerator:
Net Income $ 214,311 $ 141,991
=========== ===========
Denominator:
Weighted average common
shares outstanding 2,756,458 2,756,458
Dilutive effect of stock
options 242,000 93,000
---------- ----------
Weighted average common
shares outstanding,
assuming dilution 2,998,458 2,849,458
=========== ===========
Potential common shares from out of the money options were excluded from the
computation of diluted EPS because calculation of the associated potential
common shares have an anti-dilutive effect on EPS. The following table lists
options that were excluded from EPS.
Out of the money stock options excluded
Three Months Ended
March 31,
2011 2010
------ ------
Stock option with exercise price of $3.60 - 5,000
Stock option with exercise price of $4.56 - 2,500
Stock option with exercise price of $4.12 - 7,000
Stock option with exercise price of $3.56 - 2,250
Stock option with exercise price of $3.36 - 2,500
Stock option with exercise price of $3.28 - 10,000
Stock option with exercise price of $3.24 - 100,000
Stock option with exercise price of $2.57 - 20,000
------- -------
Total anti-dilutive options
excluded from EPS - 149,250
======= =======
15
FOOD TECHNOLOGY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
Note L - Concentration and Credit Risk
Although the Company continues to diversify its customer base, three customers
accounted for approximately 63% revenues for both quarters ended March 31,
2011 and 2010.
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 M - Subsequent Events
Subsequent to March 31, 2011, the Company entered into an agreement to purchase
300,000 curies of cobalt at a cost of approximately $840,000. Installation is
expected during the second or third quarter of 2011.
16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Food Technology Service, Inc. had revenues of $859,892 during the first quarter
of 2011 compared to revenues of $661,824 for the same period in 2010. This is
an increase of about 30 percent. The Company had income before taxes during
the first quarter of 2011 of $304,711 compared to income before taxes of
$227,591 during the first quarter of 2010. This is an increase of about 33.9
percent. The Company's statement of operations reflects non-cash deferred
income tax expense for the first quarter of 2011 in the amount of $90,400.
This resulted in net income during the first quarter of 2011 of $214,311
versus net income of $141,991 during the same period in 2010, an increase of
51 percent.
Management attributes increased revenue to continued growth in demand for
medical sterilization. In addition, about 10% of the Company's revenue during
the first quarter of 2011 resulted from an intermittent customer. This
customer has a long relationship with the Company and their needs are sporadic
and their volumes are large. We anticipate this customer using the facility
at least through the first quarter of 2012.
During the first quarter of 2011, processing costs as a percentage of sales
were 15.6 percent compared to 17.3 percent in the first quarter of 2010. These
costs are relatively fixed and the decrease reflects the increased revenue.
General, administrative and development costs as a percentage of sales during
the first quarter of 2011 were 36.0 percent compared to 34.6 percent in the
first quarter of 2010. Again these costs are relatively fixed and the increase
was due to overtime, supplies, security guards, increased depreciation and
other expenses associated with the Cobalt loading in January, 2011.
The Company has recently entered into an agreement to purchase an additional
300,000 curies of Cobalt at a cost of about $840,000 in order to accommodate
increasing demand and the intermittent customer. Installation is expected
during the second or third quarter of 2011.
Liquidity and Capital Resources
As of March 31, 2011, the Company has cash on hand of $1,649,941 and
accounts receivable of $412,221.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
17
Item 4T. Controls and Procedures
The management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Securities
Exchange Act Rules 13a-15(f) and 15d-15(f). The Company's internal control
system was designed to provide reasonable assurance to the Company's
management and board of directors regarding the preparation and fair
presentation of published financial statements. All internal control
systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation.
As of the end of the period covered by this report, an evaluation was
performed on the effectiveness of the design and operation of our disclosure
controls and procedures by our Chief Executive Officer who also acts as the
Company's Chief Financial Officer. Based upon that evaluation, our Chief
Executive/Chief Financial Officer concluded that the design and operation of
our disclosure controls and procedures were effective as of the end of the
period covered by this report.
In accordance with Rule 13a-15 of the General Rules and Regulations
promulgated under the Securities Exchange Act of 1934 (the "Act"), the term
"disclosure controls and procedures" means controls and other procedures of an
issuer that are designed to ensure that information required to be disclosed
by the issuer in the reports that it files or submits under the Act is
recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Act is accumulated and communicated to the
issuer's management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
The Company's management assessed the effectiveness of the Company's internal
control over financial reporting as of March 31, 2011 by using the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") in Internal Control - Integrated Framework. Based on this
assessment, management believes that as of March 31, 2011, the Company's
internal controls over financial reporting is effective.
There have been no changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter that
materially affected, or are reasonably likely to materially affect the
Company's internal control over financial reporting.
18
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The company is not involved in any legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits
Number Description
31 Certifications of Officers pursuant to Rule 13a-14(a)/15d-14(a)
32 Certifications of Officers pursuant to Section 1350, of the
Sarbanes - Oxley Act of 2002
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SIGNATURES
Pursuant to the requirements 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.
Date: May 11, 2011 FOOD TECHNOLOGY SERVICE, INC.
/S/ Richard Hunter
---------------------------------
Richard Hunter, Ph.D., Chief Executive
Officer and Chief Financial Officer
20
