Richard,
OFF TOPIC:
know this is a pm thread, but throught you might be interested in this.
Especially note the section on fda approval for beef... do you remember this stock from last year? Went from .75 to $11 very fast. big upside with the beef issue. of course, do your own dd.
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March 16, 1998
FOOD TECHNOLOGY SERVICE INC (VIFL)
Annual Report (SEC form 10KSB)
Security Ownership of Certain Beneficial Owners and Management...15
Item 12 Certain Relationships and Related Transactions...................16
Item 13 Exhibits and Report on Form 8-K..................................16
PART I
Item 1. Business
Food Technology Service, Inc., formerly Vindicator, Inc., (the "Company"), was organized as a Florida corporation on December 11, 1985. The Company owns and operates an irradiation facility, 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. In April 1991, the Company completed its initial public offering, and the proceeds therefrom, approximately $2,000,000, were used primarily to pay for a portion of the cost of building the Company's irradiation facility in Mulberry, Florida. Construction of the facility was completed in December, 1991 and it became operational in January 1992.
The benefits of radiation 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; and (iv) all fresh fruits and vegetables, for insect disinfestation, and to delay maturation, which extends the shelf life of many fresh fruits and vegetables.
The Company expects that its success will be dependent upon the processing of poultry, meat and shellfish. However, the FDA has not yet approved the irradiation of fish, shellfish, or meat, nor has it approved a standard polystyrene foam tray for the packaging of poultry. The delays at the federal level are preventing the Company from implementing the technology for the irradiation of meat and shellfish which has been proven to be effective in controlling E. coli, listeria and other pathogens in meat, and in eliminating vibrio, including cholera, found in raw shellfish. The petition to irradiate meats was submitted to the FDA in July 1994. A petition for the approval of the irradiation of fish and shellfish has been pending more than eight (8) years, yet no final FDA action has been taken. The information necessary to approve the standard yellow polystyrene foam tray for poultry has been at the FDA for nearly two years, but it has not yet acted to approve the use of this material for packaging.
Management is working diligently with some meat processors and with a major retailer to gain the necessary approvals, so that the technology which can protect consumers from dangerous pathogens will be implemented. The Company presently irradiates meat for astronauts, which has been approved by the FDA, but it cannot, as yet, offer its services to processors to irradiate meat for the American people. Many harvesters of shrimp and oysters have been forced into bankruptcy, as a result of the warnings to the public about the dangers of enjoying raw shellfish, while the technology of irradiation, which has been proven to be an effective method of making shellfish safe for human consumption, awaits FDA approval. The FDA approved irradiation of meat products for controlling disease-causing micro-organisms on December 2, 1997. The USDA must publish regulations for the inspection and operation of an irradiator before we can begin processing these meat products. We expect this to be completed by late 1998.
The numerous problems that have been encountered in gaining the FDA and USDA approvals have been very discouraging for the Company, and revenues to date have been nominal as a result thereof. Revenues for 1997 were $191,291, of which approximately 50% was attributable to the processing of seasonings and spices, 18% attributable to fruits and vegetables and 18% to testing products for others. A nominal amount of poultry was also processed and shipped.
In February of 1997, the Company and the Marcre Sales Corporation ("Marcre"), based in Forest Park, Georgia, signed an agreement in principle for Marcre to handle sales and distribution of food products processed by the Company. Additional partners in this initiative include MDS Nordion ("Nordion") and Nations Pride of Mulberry, Florida. Marcre specializes in fresh and frozen poultry and operates two processing plants in the Atlanta, Georgia area.
The Company does not now, nor does it 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.
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. The Company's facility is currently rated at approximately 1.7 million curies of Cobalt 60. See "Cobalt 60 Supply," below.
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, 1997, the Company employed nine persons, six of which are office personnel and three are plant employees. 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. All handling of the Cobalt 60 source, which occurs periodically for the purpose of adding or removing Cobalt 60, is done by Nordion. See "Agreements with MDS Nordion" below.
Cobalt 60 Supply
The Company has in place approximately 1.7 million 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. The price of Cobalt 60 ranges from $1.35 to $1.75 per curie. Nordion is the 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. The amount of Cobalt 60 in place is sufficient to satisfy the Company's needs for the next three to four years. Cobalt 60 is readily available from several sources. See "Agreements with MDS Nordion" below.
Additional Uses for Irradiation
Research Services
The Company uses its facility to irradiate various products as required in research activities being conducted by others, including state and federal government agencies and academia.
Medical and Consumer Products
The Company does not expect to provide irradiation treatment for medical products, because under the terms of its agreement with Nordion the Company will under some circumstances be prohibited from processing any product other than food and related products. However, if the Company's facility does not operate successfully as a food irradiation facility, it could be converted at little or no cost to a medical and consumer products irradiation facility. See "Agreements with MDS Nordion" below.
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. The Company uses Cobalt 60 as its irradiation source, which is a manufactured product and not a byproduct from a nuclear reactor or otherwise.
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 the risk of E. coli: 0157 H7 and other pathogens can be removed from meat products. The FDA approved irradiation of meat products for controlling disease-causing micro-organisms on December 2, 1997. The USDA must publish regulations for the inspection and operation of an irradiator that will process meat products. We expect this to be completed by late 1998. The Company's facility is being used by the shellfish industry for research services to gain the approvals from the FDA.
In general, no further approvals are necessary for the sale of irradiated fresh fruits and vegetables in the United States. However, the shipment of any irradiated food for export will be subject to the rules of the country of destination.
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. Among the foods anticipated to be processed by the Company, Florida grapefruit, which sometimes carries fruit fly larvae, is subject to quarantine requirements in other citrus producing states and countries, most notably Japan. As of yet, no such state or country, including Japan, has approved irradiation as effective in insect disinfestation of grapefruit. The Company believes that this is largely due to the fact that to date there has been no plant proposing to irradiate grapefruit for export into countries and states that quarantine grapefruit. The Company is currently working with the USDA Animal and Plant Inspection Service to allow its irradiation process to satisfy those quarantine requirements. The principal issue as to approval of the irradiation of grapefruit is not the safety of the irradiated grapefruit, but rather the effectiveness of the process. The USDA has found that irradiation is an effective means of satisfying such quarantine requirements and is making the results of its research available to interested states and foreign countries. The Company knows of no reason why the USDA's research should not be accepted.
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.
Any processing of meat and poultry, whether for irradiation, packaging or otherwise, is also regulated by the USDA. 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 and poultry and are now writing the required regulations for the recently approved meat products.
Regulation of the Facility and the Irradiation Process
The Company has obtained a license for the operation of its facility from the Office of Radiation Control, Florida Department of Health, which regulates the ownership and operation of all irradiation facilities and equipment in the State of Florida (including, for example, hospital x-ray equipment). The agency monitors the facility's operation to make certain that all safety regulations are being met.
Other Considerations
The Company recognizes that it is seeking to extend the commercial irradiation industry into new fields in the United States, and governmental bodies may seek to impose on the Company and its business regulatory requirements not now anticipated. In addition, the long-term course of regulatory policy cannot be predicted and, although regulatory approvals have been forthcoming, there can be no assurance that laws and regulations will not be applied in a manner that adversely affects the Company. Currently, the transportation and sale of irradiated foods is now permitted in all 50 states. Although the Company is not aware of any significant regulatory requirements applicable to its proposed business, there can be no assurance that the Company will not encounter unanticipated regulatory requirements.
Agreements with MDS Nordion
The Company, in September 1990, entered into an agreement with MDS Nordion, a corporation located in Kanata, Ontario, Canada ("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. Nordion has converted all but $585,595 and recently agreed to extend the date for repayment of the balance of this indebtedness, and accrued interest, to January 4, 1999.
Nordion also assisted the Company in the construction of its facility, providing the Company, its architects and engineers, with construction drawings of the irradiation cell, plans and specifications and assisted the Company in connection with the Company's applying for and obtaining all necessary licenses and permits for the facility. On July 1, 1991, MDS Health Group, Inc., a Delaware corporation ("MDS Health") then an affiliate of Nordion, loaned the Company $300,000. Such loan was evidenced by a Debenture due and payable, without interest, on July 1, 1993. The Debenture was convertible into shares of Common Stock at the conversion rate of $4.50 per share. In connection with the loan, the Company agreed that in the event MDS Health acquired a controlling interest in Nordion, it would grant to MDS Health or Nordion the right to convert the $2,000,000 of indebtedness to Nordion referred to in the preceding paragraph into Common Stock of the Company at a conversion rate of $4.50 per share. MDS Health acquired Nordion in November, 1991.
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 Bank of Montreal 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.
On December 11, 1991 the Company entered into a further Agreement with Nordion whereby Nordion agreed to make available to the Company over a period of time an additional $850,000 for working capital purposes and an additional $900,000 in the form of additional curies of Cobalt 60 (approximately 600,000 curies). In addition, as part of the Agreement,
(a) The Company reduced the conversion rate of the above mentioned $2,000,000 of indebtedness to Nordion from $4.50 to $4.05 per share.
(b) The $300,000 debenture payable to MDS Health was assigned by MDS Health to Nordion and canceled. A new Debenture, in the amount of $900,000 payable to Nordion was issued (this included the $300,000 prior Debenture payable to MDS Health and $600,000 of the additional $850,000 that Nordion agreed to lend to the Company). The Debenture is due and payable September 4, 1994 and was convertible at any time prior thereto into shares of Common Stock at the conversion rate of $4.05 per share. In addition, the Debenture is secured by a first mortgage on the property on which the plant is located.
(c) The Company agreed to pay the $900,000 due Nordion for the additional 600,000 curies of Cobalt 60 on September 4, 1994 without interest. Such indebtedness is secured by the irradiation equipment and other personal property and the 1,000,000 curies of cobalt supplied by Nordion. In addition, the indebtedness was convertible at any time on or before September 4, 1994 into shares of Common Stock of the Company at the conversion rate of $4.05 per share.
(d) The Company granted Nordion the right to designate two members to the Board of Directors.
On November 23, 1994, Nordion extended the due date on all indebtedness as well as accrued interest from September 4, 1994, to January 4, 1996 and in early 1996, further extended the due date to January 4, 1997. In early 1997, Nordion again extended the due date to January 4, 1998. In 1998, Nordion extended the due dated to January 4, 1999. At December 31, 1997 such indebtedness amounted to $585,595. The indebtedness continues to be secured by substantially all of the assets of the Company. As part of such extensions, the conversion rate was reduced from $4.05 to $.80 per share. For the balance of the original loans ($382,317). For all cash advances and interest accrued in 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. In addition to the 1 million curies of Cobalt 60, which were supplied the Company in 1990 and 1991, Nordion, in 1992, stored an additional 2.4 million curies 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 1.2 million curies. 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.
The agreements with Nordion provide that, until the Company pays its debt to Nordion in full, the Company may not compete with Nordion's existing customers in their irradiation of non-food products, unless the Company obtains Nordion's prior consent. This provision could make it difficult for the Company to succeed in the event that irradiation of food and related products is not sufficient to allow the Company to become profitable.
Item 2. Properties
The Company's irradiation facility and executive office are located on an approximately 4.33 acre site owned by the Company in Mulberry, Polk County, Florida. The Company purchased the site because of its convenient access to State Road 60, a major transportation artery between central Florida produce growers and the port facility at Tampa. Should the Company's first facility prove successful, the site is sufficiently large to add one or two additional irradiation chambers, thereby increasing the capacity of the facility.
The Company's irradiation facility and executive office comprises approximately 28,800 square feet, including a 22,600 square foot warehouse and loading and unloading area, a 3,200 square foot office area, and a 3,000 square foot irradiation chamber and Cobalt 60 storage cell. The Company's irradiation processing plant consists of a radiation source, an automated conveying system, and operating safety controls. The heart of the plant is the radiation source. Within the processing chamber, a water-filled pool, approximately 28 feet deep, is used to shield and store the radiation source in the "off" position. The pool is enclosed in a radiation proof chamber, a double safeguard against the escape of any radiant energy. The concrete walls and roof of the processing chamber are approximately 6 feet thick and, during the times that the source is out of the pool in the "on" position, will provide safe shielding of adjacent areas such as the control room, work floor, offices and outdoor grounds. The control room contains operating and safety controls. The conveying system is used to transport foods to and from the processing chamber. The Company's facility is designed to operate 24 hours a day, seven days a week. Although the Company currently has available approximately 1.7 million curies of Cobalt 60, the facility is designed to meet international standards of radiation protection with an installed source of 7,000,000 curies. The capacity of the source racks, however, will only permit a maximum of 5,000,000 curies of Cobalt 60 to be installed.
As indicated under Item 1 Business - Agreements with MDS Nordion" substantially all of the assets of the Company are pledged as collateral against the obligation to Nordion.
Item 3. Legal Proceedings - None
Item 4. Submission of Matters to a Vote of Security Holders - None
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Recent Filings: Mar 1998 (Annual Rpt)
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