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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2013

 

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

For the transition period from [                    ] to [                    ]

Commission File Number 0-19047

 

 

FOOD TECHNOLOGY SERVICE, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

FLORIDA		59-2618503
(State of Incorporation or Organization)		(Employer Identification Number)

 

502 Prairie Mine Road, Mulberry, FL		33860
(Address of Principal Executive offices)		(Zip code)

(863) 425-0039

(Registrant’s telephone number, including area code)

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer		¨		Accelerated Filer		¨
Non-Accelerated Filer		¨		Smaller Reporting Company		x

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

There were 2,837,133 shares of the Registrant’s common stock, $.01 par value per share, issued and outstanding as of October 31, 2013.

 

 

 

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TABLE OF CONTENTS

 

				Page
PART I. FINANCIAL INFORMATION
Item 1		Financial Statements:
		Balance Sheets – As of September 30, 2013 and December 31, 2012			3
		Statements of Operations – For the Three Months Ended September 30, 2013 and 2012			5
		Statements of Operations – For the Nine Months Ended September 30, 2013 and 2012			6
		Statements of Cash Flows – For the Nine Months Ended September 30, 2013 and 2012			7
		Notes to Financial Statements			8
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3		Quantitative and Qualitative Disclosures About Market Risk			16
Item 4T		Controls and Procedures			16
PART II. OTHER INFORMATION
Item 1		Legal Proceedings			17
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds			17
Item 3		Defaults Upon Senior Securities			17
Item 4		Submission of Matters to a Vote of Security Holders			17
Item 5		Other Information			17
Item 6		Exhibits			17
SIGNATURES					18

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PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

FOOD TECHNOLOGY SERVICE, INC.

BALANCE SHEETS

 

		As of September 30, 2013				As of December 31, 2012
		(Unaudited)				(Audited)
ASSETS
Current Assets:
Cash		$	3,557,977			$	2,336,814
Certificate of Deposit, Restricted			—				150,169
Accounts Receivable, Less Allowance for Doubtful Accounts of $5,000			615,093				444,902
Other Receivable			9,521				11,390
Prepaid Expenses			42,521				16,979
Deferred Tax Asset			94,900				521,000
Total Current Assets			4,320,012				3,481,254
Property, Plant and Equipment:
Buildings			3,493,643				3,488,668
Cobalt			6,934,390				6,934,390
Furniture and Equipment			1,309,884				2,835,228
Land			171,654				171,654
Less: Accumulated Depreciation			(6,177,658	)			(7,249,229	)
Total Property, Plant and Equipment			5,731,913				6,180,711
Other Assets:
Certificate of Deposit, Restricted			150,345				—
Utility Deposits			5,000				5,000
Loan Fees – Net			4,588				4,192
Total Other Assets			159,933				9,192
Total Assets		$	10,211,858			$	9,671,157

 

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

 

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FOOD TECHNOLOGY SERVICE, INC.

BALANCE SHEETS

 

		As of September 30, 2013				As of December 31, 2012
		(Unaudited)				(Audited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable		$	21,132			$	196,338
Accrued Liabilities			159,100				256,117
Total Current Liabilities			180,232				452,455
Deferred Tax Liabilities			154,900				125,400
Total Liabilities			335,132				577,855
Stockholders’ Equity:
Common Stock $.01 Par Value, Authorized 5,000,000 Shares, Issued 2,837,133 and 2,827,980			28,370				28,354
Paid-In Capital			12,411,344				12,391,689
Deficit			(2,544,497	)			(3,308,250	)
Less, 5,154 Treasury Shares at Cost			(18,491	)			(18,491	)
Total Stockholders’ Equity			9,876,726				9,093,302
Total Liabilities and Stockholders’ Equity		$	10,211,858			$	9,671,157

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

 

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FOOD TECHNOLOGY SERVICE, INC.

STATEMENTS OF OPERATIONS

 

		Three Months Ended September 30,
		2013				2012
		(Unaudited)				(Unaudited)
Net Revenues		$	1,027,510			$	925,654
Costs and Operating Expenses
Processing Costs			168,939				148,413
Selling, General and Administrative			346,768				292,442
Depreciation and Amortization			165,604				153,332
Total Costs and Operating Expenses			681,311				594,187
Income from Operations			346,199				331,467
Interest Income			231				220
Income before Income Taxes			346,430				331,687
Income Tax Expense			(127,800	)			(125,200	)
Net Income		$	218,630			$	206,487
Net Income Per Common Share
-Basic		$	0.077			$	0.073
-Diluted		$	0.075			$	0.070
Weighted Average Number of Common Shares Used in Computation
-Basic			2,837,133				2,827,042
-Diluted			2,924,133				2,937,542

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

 

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FOOD TECHNOLOGY SERVICE, INC.

STATEMENTS OF OPERATIONS

 

		Nine Months Ended September 30,
		2013				2012
		(Unaudited)				(Unaudited)
Net Revenues		$	3,237,412			$	2,996,094
Costs and Operating Expenses
Processing Costs			505,598				480,263
Selling, General and Administrative			1,001,613				916,719
Depreciation and Amortization			508,792				411,751
Total Costs and Operating Expenses			2,016,003				1,808,733
Income from Operations			1,221,409				1,187,361
Interest Income			744				610
Income before Income Taxes			1,222,153				1,187,971
Income Tax Expense			(458,400	)			(448,300	)
Net Income		$	763,753			$	739,671
Net Income Per Common Share
-Basic			0.269				0.263
-Diluted			0.261				0.253
Weighted Average Number of Common Shares
Used in Computation
-Basic			2,836,344				2,817,790
-Diluted			2,923,344				2,928,290

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

 

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FOOD TECHNOLOGY SERVICE, INC.

STATEMENTS OF CASH FLOWS

 

		Nine Months Ended September 30,
		2013				2012
		(Unaudited)				(Unaudited)
Cash Flows from Operations:
Cash Received from Customers		$	3,067,221			$	3,045,998
Interest Received			744				610
Interest Paid			(3,148	)			(482	)
Cash Paid for Operating Expenses			(1,785,310	)			(1,367,082	)
Net Cash Provided by Operations			1,279,507				1,679,044
Cash Flows from Investing Activities:
Certificate of Deposit			(176	)			(150,112	)
Letter of Credit Costs			(12,234	)			(12,269	)
Purchase of Cobalt, Delivery & Installation							(898,405	)
Purchase of Equipment			(43,259	)			(20,006	)
Equipment Deposit							(393,968	)
Building Improvements			(4,975	)			(44,945	)
Net Cash (Used) by Investing			(60,644	)			(1,519,705	)
Cash Flows from Financing Activities
Excess Tax Benefit From Share Based Compensation			2,300				42,000
Net Increase in Cash			1,221,163				201,339
Cash at Beginning of Period			2,336,814				2,000,367
Cash at End of Period		$	3,557,977			$	2,201,706
Reconciliation of Net Income to Net Cash Provided by Operations:
Net Income		$	763,753			$	739,671
Adjustments to Reconcile Net Income to Cash Provided or Used:
Amortization			11,838				11,851
Depreciation			496,954				399,900
Loss on disposal of assets			80				—
Deferred Income Tax			456,300				448,300
Excess Tax Benefit From Share Based Compensation			(2,300	)			(42,000	)
Share-Based Compensation			18,971				32,067
(Increase)/Decrease in Receivables			(170,191	)			49,904
(Increase)/Decrease in Other Receivables			1,869				—
(Increase)/Decrease in Prepaid Expenses			(25,543	)			(11,469	)
Increase/(Decrease) in Payables			(175,207	)			(7,944	)
Increase/(Decrease) in Accruals			(97,017	)			58,764
Net Cash Provided by Operations		$	1,279,507			$	1,679,044
Non-cash Financing Transactions:
Fair Value of Common Stock Issued Pursuant to Exercised Stock Options		$	4,260			$	153,315

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

 

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FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

Note A - Basis of Presentation

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

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

Note B - Business Description and Summary of Significant Accounting Policies

The Company was organized in December 1985 and is engaged in the business of operating a gamma irradiation facility using Cobalt 60 for the sterilization of medical, surgical, pharmaceutical and packaging materials. It also disinfects fruits, vegetables, oysters and meat products to enhance safety or eliminate insect pests.

1. Use of Estimates

Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements.

2. Revenue Recognition

The primary source of revenue is from treating products with gamma radiation from Cobalt 60. Net Revenue is the gross income from such processing less allowances, if any. Revenues are recorded after the Company’s performance obligation is completed and product has been processed in accordance with the customer’s specifications and collection of the resulting receivable is probable.

3. Accounts Receivable and Allowances for Doubtful Accounts

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

4. Property, Plant and Equipment

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

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

 

Building		31.5-40 Years
Furniture and Equipment		5-15 Years

 

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FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 

The total cost basis of Cobalt has been depreciated using engineering estimates from published tables under which one-half of the remaining value is written off over 5.26 year periods.

Estimated useful lives are periodically reviewed and if warranted, changes will be made accordingly.

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

5. Cash and Cash Equivalents

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

6. Concentration of Credit Risk

The Company maintains its cash in three financial institutions. The Federal Deposit Insurance Corporation insured up to $250,000 per legal entity per financial institution and all funds in noninterest-bearing transaction accounts until December 31, 2012. As of January 1, 2013 noninterest-bearing transaction accounts no longer receive unlimited deposit insurance coverage. The Company’s uninsured balances totaled approximately $2,905,822 as of September 30, 2013 and $144,736 as of December 31, 2012.

7. Earnings Per Share

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

8. Fair Value of Financial Instruments

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

9. Stock Option Plans

The Company has various stock option plans for employees and other individuals providing services to or serving as Directors of the Company. (See Note H - Stock Options) Compensation cost under the plans is recognized using the fair value recognition provisions of FASB ASC 718. Such cost is recognized for shares expected to vest on a straight-line basis over the requisite service period of the award using the Black-Scholes option-pricing model. FASB ASC 718 requires the benefits of tax deductions in excess of the compensation cost recognized for those options to be classified as financing cash inflows rather than operating cash inflows. This amount is shown as excess tax benefit from share based compensation on the statements of cash flows. The excess tax benefits from the expired options are recorded in additional paid-in capital and any tax benefits from stock options expired unexercised are offset to the extent of any remaining balance.

10. Advertising

The Company expenses all advertising costs when incurred. Advertising expense recognized for the three months ended September 30, 2013 and 2012 was $1,237 and $2,675, respectively, and for the nine months ended September 30, 2013 and 2012 was $16,053 and $5,327, respectively.

 

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FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 

11. Reclassification

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

Note C - Certificate of Deposit

Certificate of deposit totaling $150,345 bears interest of 0.10% that compounds quarterly and matures on November 4, 2014 with penalties for early withdrawal. Any penalties for early withdrawal would not have a material effect on the financial statements. The certificate of deposit is restricted as collateral for the company’s letter of credit with Regions bank.

Note D - Loan Fees

During the first quarter of 2013, renewal fees in the amount of $12,269 were incurred in connection with the Regions letter of credit (See Note E - Letter and Line of Credit). As of September 30, 2013 and December 31, 2012, total loan fees were $20,821 and $20,856, respectively. These fees were amortized based on the life of the loans and written off upon completion. Amortization expense for the three months ended September 30, 2013 and 2012 was $3,264 and $3,272, respectively and for the nine months ended September 30, 2013 and 2012 was $11,838 and $11,851, respectively.

Note E - Letter and Line of Credit

The State of Florida requires, as a condition of the Company’s Radioactive Materials License, a $600,000 irrevocable standby letter of credit. This letter of credit with Regions Bank was renewed at similar terms prior to its February 24, 2013 expiration to satisfy the state’s requirements. The letter of credit has an annual fee of $12,269 and is collateralized by the Company’s real estate and a $150,345 certificate of deposit.

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

Note F - Income Taxes and Available Tax Loss Carryforwards

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

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2013				2012				2013				2012
Current
Federal		$	—			$	—			$	—			$	—
State			2,100				—				2,100				—
Total Current			2,100				—				2,100				—
Deferred-Benefit
Federal			113,000				106,900				395,300				382,800
State			12,700				18,300				61,000				65,500
Total Deferred-Benefit			125,700				125,200				456,300				448,300
Total Income Tax Expense/(Benefit)		$	127,800			$	125,200			$	458,400			$	448,300

 

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FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 

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

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2013				2012				2013				2012
Expected Provision at US Statutory Rate		$	117,800			$	112,800			$	415,600			$	403,900
State Income Tax Net of Federal Benefit			9,600				12,000				41,500				43,200
Nondeductible Expenses			400				400				1,300				1,200
Income Tax Expense / (Benefit)		$	127,800			$	125,200			$	458,400			$	448,300

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

The Company’s NOL carryforward is as follows:

 

		As of September 30, 2013								As of December 31, 2012
		Federal				State				Federal				State
NOL Carryforward - Beginning Of Period			1,605,865				1,108,671				2,071,925				2,071,925
Less Used			(1,235,750	)			(1,108,671	)			(466,060	)			(963,254	)
NOL Carryfoward - End Of Period			370,115				—				1,605,865				1,108,671

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

 

		As of September 30, 2013								As of December 31, 2012
		Current				Noncurrent				Current				Noncurrent
NOL Carryforward		$	94,900			$	24,000			$	521,000			$	56,000
Accured Liabilities			—				19,500				—				19,500
Share-Based Compensation			—				43,300				—				38,500
Property, Plant & Equipment			—				(241,700	)			—				(239,400	)
Net Deferred Tax Asset/(Liability)		$	94,900			$	(154,900	)		$	521,000			$	(125,400	)

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

As of September 30, 2013, no further changes to the valuation allowance have been made. The Company believes that its estimate of future operations is conservative and reasonable, but inherently uncertain. If the Company realizes unforeseen material losses in the future and its future projections of income decrease, the allowance could be increased resulting in a charge to income.

The Company’s tax years 2010 through 2012 remain open to examination by taxing jurisdictions.

Note G - Accrued Liabilities

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

 

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FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 

Note H - Stock Options

On February 9, 1999, the Board of Directors approved an option program for non-employee Directors.

The program was amended in 2001 and 2005 to provide for the annual granting to each non-employee Director of five year options to purchase 1,500 shares of common stock, exercisable at the end of one year at the market value of the shares of common stock on the date of grant. Also, the Chairman of the Board is awarded annually five year options to purchase an additional 2,500 shares. Options outstanding under this plan as of September 30, 2013 and 2012 are 0 and 8,500, respectively.

No further options are being issued under the 1999 Plan.

On May 14, 2009, the Stockholders approved the 2009 Incentive and Non-Statutory Stock Option Plan (the “2009 Plan”).

The 2009 Plan is administered by the Board of Directors who is authorized to grant incentive stock options (“ISO’s”) to Officers and employees of the Company and non-qualified options (“NQO’s”) for certain other individuals providing services to or serving as Directors of the Company

The maximum number of shares of the Company’s Stock that may be issued under the 2009 Plan is 125,000 shares. Options granted and outstanding under this plan are as follows:

 

Year		Granted				Outstanding
Before 2011			23,000				17,000
2011			10,000				10,000
2012			10,000				10,000
			43,000				37,000

The aggregate fair market value (determined at the time an ISO is granted) of the Common Stock with respect to which ISO’s are exercisable for the first time by any person during any calendar year under the Plans shall not exceed $100,000.

The ISO’s are exercisable 20% of the authorized amount immediately and 20% in each of the following four years. ISO’s granted to an optionee terminate 30 to 90 days after termination of employment or other relationship, except that ISO’s terminate the earlier of the expiration date of the option, or 90 to 180 days in the event of death and 180 days to one year in the event of disability.

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

 

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FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 

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

 

		Number of Shares				Wtd. Avg. Exercise Price				Wtd. Avg. Remaining Contractual Life (Yrs)
Outstanding At December 31, 2012			105,500			$	2.10				4.50
Granted			—			$	—
Exercised			(3,000	)		$	2.18
Expired/Forfeited			(5,500	)		$	2.18
Outstanding At September 30, 2013			97,000			$	2.09				4.11
Vested/Exercisable At September 30, 2013			85,000			$	2.25				3.95

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

 

		Number of Shares				Wtd. Avg. Grant Date Fair Value
Nonvested, At December 31, 2012			12,000			$	0.28
Granted			—			$	—
Vested			—			$	—
Nonvested, At September 30, 2013			12,000			$	0.28
Expired/Forfeited During Period			5,500			$	0.75

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

 

		Nine Months Ended September 30,
		2013		2012
Risk Free Interest Rate		—		0.62-1.04%
Expected Volatility		—		80.06-80.25%
Expected Life		—		5 years
Dividend Yield		—		0.00%

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

For the three months ended September 30, 2013 and 2012, 1,500 and 1,500 stock options were exercised under a cashless program resulting in the issuance of 834 and 938 shares and an excess tax benefit of $1,100 and $1,700, respectively. For the nine months ended September 30, 2013 and 2012, 3,000 and 36,000 stock options were exercised under a cashless program resulting in the issuance of 1,682 and 22,808 shares and an excess tax benefit of $2,300 and $42,000, respectively.

The Company recognized $831 and $11,821 stock-based compensation expense for the three months ended September 30, 2013 and 2012, respectively and $18,971 and $32,067 for the nine months ended September 30, 2013 and 2012, respectively.

 

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FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 

As of September 30, 2013, there was $832 of unrecognized compensation costs related to non-vested stock options, which will be amortized to expense over future periods. The Company expects to recognize that cost over the weighted average vesting period of 0.25 years.

Note I - Earnings Per Share

Earnings per share are calculated in accordance with ASC 260-10, “Earnings Per Share”. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the years. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares. Common share equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive.

ASC 260-10 requires the presentation of both Basic EPS and Diluted EPS on the face of the Company’s Statements of Operations.

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

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2013				2012				2013				2012
Numerator:
Net Income		$	218,630			$	206,487			$	763,753			$	739,671
Denominator:
Wtd. Avg. Common Shares Outstanding			2,837,133				2,827,042				2,836,344				2,817,790
Dilutive Effect of Stock Options			87,000				110,500				87,000				110,500
Wtd. Avg. Common Shares Outstanding, Assuming Dilution			2,924,133				2,937,542				2,923,344				2,928,290

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

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2013				2012				2013				2012
Stock option with exercise price of $6.26			10,000				—				10,000				—

Note J - Concentration and Credit Risk

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

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2013				2012				2013				2012
Customer 1			27	%			30	%			31	%			31	%
Customer 2			20	%			24	%			22	%			29	%
Total			47	%			54	%			53	%			60	%

 

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FOOD TECHNOLOGY SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

 

The Company’s cash and accounts receivable are subject to potential credit risk. Management continuously monitors the credit standing of the financial institutions and customers with which the Company deals. A provision has been made for doubtful accounts which historically have not been significant.

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

Note K - Subsequent Events

In October, 2013 the Company entered into an agreement with Nordion for the purchase and installation of 200,000 curies of Cobalt at an estimated cost of $675,000. The Cobalt shipment and installation date will not be known until completed.

 

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Item 2.

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

Food Technology Service, Inc. had revenues of $1,027,510 during the third quarter of 2013 compared to revenues of $925,654 for the same period in 2012. This is an increase of approximately 11 percent. The Company had net income during the third quarter of 2013 of $218,630 versus net income of $206,487 during the same period in 2012, an increase of approximately 5.9 percent.

For the first three quarters of 2013, the Company had revenues of $3,237,412 and net income of $763,753. Revenues during the first three quarters of 2012 were $2,996,094 and the Company had net income of $739,671. Revenues increased by about 8.1 percent and net income increased by approximately 3.3 percent in the first three quarters of 2013 compared to the same period in 2012.

Management attributes increased revenue to continued growth in customer demand.

During the third quarter of 2013, processing costs as a percentage of sales were 16.4 percent compared to 16 percent during the third quarter of 2012. These costs are relatively fixed and the slight increase in 2013 is not significant. General, administrative and development costs as a percentage of sales during the third quarter of 2013 were 33.7 percent. This compares to 31.6 percent in the third quarter of 2012. The increase in general, administrative and development expenses, as a percentage of sales, is due primarily to increased contracted professional services associated with Board activities.

During the first nine months of 2013, processing costs and general, administrative and development costs as a percentage of sales remained relatively constant at approximately 15.6% and 30.9% respectively. As previously noted, these cost are relatively fixed.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

 

Item 4T.

Controls and Procedures

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

As of the end of the period covered by this report, an evaluation was performed on the effectiveness of the design and operation of our disclosure controls and procedures by our Chief Executive Officer who also acts as the Company’s Chief Financial Officer. Based upon that evaluation, our Chief Executive/Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of the end of the period covered by this report.

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

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2013, by using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework. Based on this assessment, management believes that as of September 30, 2013, the Company’s internal controls over financial reporting is effective.

 

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There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

PART II:

OTHER INFORMATION

 

Item 1.

Legal Proceedings

The company is not involved in any legal proceedings.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

 

Item 3.

Defaults upon Senior Securities

Not applicable

 

Item 4.

Submission of Matters to a Vote of Security Holders

Not applicable

 

Item 5.

Other Information

Not applicable

 

Item 6.

Exhibits

 

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

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 13, 2013

 

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