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
<PAGE>
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
<PAGE>
PART I
Item 1. Business
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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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
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None
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 <F1> 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 <F2> (*)
John Hammond 8,000 <F3> (*)
Craig Hunter 5,923,626 <F1> 57.42
David Nicholds 5,923,626 <F1> 57.42
Paul O'Neill 8,000 <F4> (*)
All Directors and Officers 5,969,826 <F5> 57.87
as a group (7 persons)
* Less than 1%
<FN1>
(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.
<FN2>
(2) Includes 7,000 shares underlying options which are currently exercisable or
exercisable within the next sixty (60) days.
<FN3>
(3) Includes 8,000 shares underlying options which are currently exercisable
or exercisable within the next sixty (60) days.
<FN4>
(4) Includes 8,000 shares underlying options which are currently exercisable or
exercisable within the next sixty (60) days.
<FN5>
(5) Includes shares underlying options which are currently exercisable or
exercisable within the next sixty (60) days and shares underlying
convertible debt.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<CASH> 20,937
<SECURITIES> 0
<RECEIVABLES> 117,300
<ALLOWANCES> 0
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<CURRENT-ASSETS> 142,123
<PP&E> 6,025,455
<DEPRECIATION> 2,482,167
<TOTAL-ASSETS> 3,690,411
<CURRENT-LIABILITIES> 298,513
<BONDS> 954,476
0
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<SALES> 387,966
<TOTAL-REVENUES> 387,966
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