-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CrfhjCm4VlhEyts4jvsTKxJZfYcUaqiGOBelRQXctt7JEhUzk+hkjwarnybCrPUA DmHIckOhSU1f2pLkXIa2KQ== 0000927016-02-002785.txt : 20020514 0000927016-02-002785.hdr.sgml : 20020514 ACCESSION NUMBER: 0000927016-02-002785 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPTA FOOD INGREDIENTS INC /DE CENTRAL INDEX KEY: 0000883326 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 043117634 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19811 FILM NUMBER: 02644570 BUSINESS ADDRESS: STREET 1: 25 WIGGINS AVE CITY: BEDFORD STATE: MA ZIP: 01730 BUSINESS PHONE: 6172765100 MAIL ADDRESS: STREET 1: 25 WIGGINS AVENUE CITY: BEDFORD STATE: MA ZIP: 01730 10-Q 1 d10q.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2002 Commission File No. 0-19811 ------- OPTA FOOD INGREDIENTS, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 04-3117634 -------- ---------- (State of Incorporation) (I.R.S. Employer Identification No.) 25 Wiggins Avenue, Bedford, MA 01730 - ------------------------------ ----- (Address of Principal Executive Offices) Zip Code) (781) 276-5100 -------------- (Registrant's Telephone No., Including Area Code) 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 X NO ----- ----- As of May 10, 2002, the registrant had 10,856,873 shares of common stock outstanding. Opta Food Ingredients, Inc. Form 10-Q - -------------------------------------------------------------------------------- Quarter Ended March 31, 2002 Table of Contents
Page Number ------ Part I - Financial Information - ------------------------------ Item 1 - Financial Statements Consolidated Balance Sheet March 31, 2002 and December 31, 2001 3 Consolidated Statement of Operations for the Three Months Ended March 31, 2002 and 2001 4 Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2002 and 2001 5 Notes to Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3 - Quantitative and Qualitative Disclosure About Market Risk 11 Part II - Other Information - --------------------------- Item 1 through Item 6 12 Signatures 13
Opta Food Ingredients, Inc. Consolidated Balance Sheet (in thousands) - -------------------------------------------------------------------------------- (Unaudited)
March 31, December 31, 2002 2001 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 2,633 $ 1,579 Short term investments 3,139 4,341 Accounts receivable, net 4,116 3,679 Inventories (Note 3) 6,253 6,124 Prepaid expenses and other current assets 374 164 ----------- ----------- Total current assets 16,515 15,887 Fixed assets, net 22,610 23,249 Patents and trademarks, net 307 331 Goodwill, net 1,223 1,223 Other assets 684 695 ----------- ----------- $ 41,339 $ 41,385 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long term debt $ 254 $ 333 Accounts payable 1,001 926 Accrued expenses 853 963 ----------- ----------- Total current liabilities 2,108 2,222 Long term debt 1,722 1,738 Stockholders' equity: Common stock 113 113 Additional paid-in capital 79,943 79,943 Treasury stock, at cost (1,115) (1,115) Accumulated other comprehensive loss (109) (107) Accumulated deficit (41,323) (41,409) ----------- ----------- Total stockholders' equity 37,509 37,425 ----------- ----------- $ 41,339 $ 41,385 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 Opta Food Ingredients, Inc. Consolidated Statement of Operations (in thousands, except per share data) - -------------------------------------------------------------------------------- (Unaudited)
For the three months ended March 31, ------------------------- 2002 2001 ----------- ----------- Product revenue $ 6,452 $ 6,322 Cost and expenses: Cost of revenue 4,910 5,078 Selling, general and administrative 1,033 1,143 Research and development 437 722 ----------- ----------- 6,380 6,943 ----------- ----------- Income (loss) from operations 72 (621) Other income (expense): Interest income 35 145 Interest expense (35) (51) Other income 14 28 ----------- ----------- 14 122 ----------- ----------- Net income (loss) $ 86 ($ 499) =========== =========== Basic net income (loss) per share (Note 5) $ .01 ($ .05) =========== =========== Diluted net income (loss) per share (Note 5) $ .01 ($ .05) =========== =========== Weighted average shares outstanding - basic 10,857 10,788 =========== =========== Weighted average shares outstanding - diluted 10,857 10,788 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 Opta Food Ingredients, Inc. Consolidated Statement of Cash Flows (in thousands) - -------------------------------------------------------------------------------- (Unaudited)
For the three months ended March 31, --------------------------- 2002 2001 ---------- ---------- Cash flows from operating activities: Net income (loss) $ 86 $ (499) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 720 762 Change in assets and liabilities: Increase in accounts receivable, net (438) (679) Increase in inventories, net (129) (255) Increase in prepaid expenses and other assets (210) (117) Increase in accounts payable 75 215 Decrease in accrued expenses (109) (531) ---------- ---------- Total adjustments (91) (605) ---------- ---------- Net cash used in operating activities (5) (1,104) Cash flows from investing activities: Purchase of short term investments (222) (1,420) Maturity of short term investments 1,424 751 Purchase of fixed assets (48) (1,383) Increase in patents and trademarks (10) (36) Decrease in other assets 10 424 ---------- --------- Net cash provided by (used in) investing activities 1,154 (1,664) Cash flows from financing activities: Principal payments on long term debt (95) (129) ---------- --------- Net cash used in financing activities (95) (129) ---------- --------- Effect of changes in exchange rates on cash - (9) Net increase (decrease) in cash and cash equivalents 1,054 (2,906) Cash and cash equivalents at beginning of period 1,579 6,807 ---------- ---------- Cash and cash equivalents at end of period $ 2,633 $ 3,901 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 5 Opta Food Ingredients, Inc. Notes to Consolidated Unaudited Financial Statements - -------------------------------------------------------------------------------- 1. Basis of Presentation The consolidated financial statements of Opta Food Ingredients, Inc. (the "Company") include, in the opinion of management, all adjustments (consisting of normal and recurring adjustments) necessary for a fair statement of the Company's financial position at March 31, 2002 and December 31, 2001 and the results of operations for the three months ended March 31, 2002 and 2001, respectively. All material intercompany transactions and balances have been eliminated. The results of operations are not necessarily indicative of results for a full year. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, filed with the Securities and Exchange Commission pursuant to Section 13 of the Securities Exchange Act of 1934. The consolidated balance sheet data as of December 31, 2001 was derived from audited financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. 2. Recent Pronouncements In July 2001, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill be discontinued and replaced with periodic tests of the goodwill's impairment and that certain intangible assets other than goodwill be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001. The Company recorded goodwill amortization of $41,000 during the first quarter of 2001 which did not recur in the first quarter of 2002 due to the adoption of SFAS No. 142. The Company adopted the provisions of SFAS No. 142 on January 1, 2002. The Company is currently in the process of performing the transitional impairment test on the unamortized goodwill balance of $1.2 million. Under the transition provisions of SFAS No. 142, this test is required to be completed by June 30, 2002. The Company does not believe a potential impairment exists. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which provides the accounting requirements for retirement obligations associated with tangible long-lived assets. This Statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. This Statement is effective for our 2003 fiscal year, and early adoption is permitted. The adoption of SFAS No. 143 is not expected to have an impact on our consolidated results of operations, financial position or cash flows. 6 Opta Food Ingredients, Inc. Notes to Consolidated Unaudited Financial Statements (Continued) - -------------------------------------------------------------------------------- In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which excludes from the definition of long-lived assets goodwill and other intangibles that are not amortized in accordance with SFAS No. 142. SFAS No. 144 requires that long-lived assets to be disposed of by sale be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 also expands the reporting of discontinued operations to include components of an entity that have been or will be disposed of rather than limiting such discontinuance to a segment of a business. The Company adopted SFAS No. 144 on January 1, 2002 with no material effect on our consolidated results of operations, financial position or cash flows. 3. Inventories Inventories consist of the following (in thousands):
March 31, December 31, 2002 2001 ------------ ------------ Raw materials $ 727 $ 681 Finished goods 5,526 5,443 ------------ ------------ $ 6,253 $ 6,124 ============ ============
Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method. 4. Net Income (Loss) Per Share Basic net income (loss) per share is determined by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share for the three months ended March 31, 2002 is determined by dividing the net income by the weighted average shares outstanding including common stock equivalents. For the three months ended March 31, 2001, all common stock equivalents have been excluded from weighted average shares outstanding for calculating diluted net income (loss) per share because such equivalents are anti-dilutive. 5. Comprehensive Income (Loss) For the three months ended March 31, 2002, the Company's comprehensive income was $84,000, which was comprised of the net income of $86,000 and a loss on foreign currency translation of $2,000, as compared to a comprehensive net loss of $559,000, which was comprised of a net loss of $499,000 and a loss on foreign currency translation of $60,000 for the same period in 2001. 6. Restructuring During the fourth quarter of 2001, the Company recorded a charge of $161,000 for severance and related costs due to a reduction in headcount as part of a corporate restructuring program. For the three months ended March 31, 2002, $147,000 of these charges had been paid. 7 Part I Item 2 Opta Food Ingredients, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Introduction: Opta Food Ingredients, Inc. ("Opta" or the "Company") is a fully integrated developer, manufacturer and marketer of proprietary food ingredients used by consumer food companies to improve the nutritional content, healthfulness and taste of a wide variety of foods. The Company modifies inexpensive raw materials and produces natural food ingredients that can be considered Generally Recognized as Safe ("GRAS") under current U.S. Food and Drug Administration ("FDA") regulations. You should read the following discussion in conjunction with (1) the Company's accompanying unaudited Consolidated Financial Statements and notes thereto included in this report on Form 10-Q and (2) the Company's audited Consolidated Financial Statements, notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2001 included in our Annual Report on Form 10-K for such period. The following Discussion and Analysis of the Company's Financial Condition and Results of Operations may contain forward-looking statements that are based on current expectations, estimates and projections. Such forward-looking statements reflect management's good-faith evaluation of information currently available. However, because such statements are based upon, and therefore can be influenced by, a number of external variables over which management has no, or incomplete, control, they are not, and should not be read as being guarantees of future performance or of actual future results; nor will they necessarily prove to be accurate indications of the times at or by which any such performance or result will be achieved. Accordingly, actual outcomes and results may differ materially from those expressed in such forward-looking statements. The Company does not intend to update any such forward-looking statements. Factors which could cause actual results to differ from these expectations include sales to a small number of food and food service companies, the size and timing of significant orders, as well as deferral of orders, over which the Company has no control; the extended product testing cycles of the Company's potential customers; the variation in the Company's sales cycles from customer to customer; increased competition posed by food ingredient manufacturers; changes in pricing policies by the Company and its competitors; the adequacy of existing, or the need to secure or build additional manufacturing capacity in order to meet the demand for the Company's products; the Company's success in expanding its sales and marketing programs and its ability to gain increased market acceptance for its existing product lines; the Company's ability to timely develop and successfully introduce new products in its pipeline at acceptable costs; the ability to scale up and successfully produce its products; the potential for significant quarterly variations in the mix of sales among the Company's products; the gain or loss of significant customers; shortages in the availability of raw materials from the Company's suppliers; the impact of new government regulations on food products; the challenges of integrating the operations of acquired businesses; and general economic conditions. Factors that could cause or contribute to such differences include the factors discussed in the section titled "Business" under the caption "Cautionary Statement Regarding Forward-Looking Statements" as well as other risk factors as stated in the Company's Annual Report on Form 10-K. 8 Opta Food Ingredients, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Results of operations for the three months ended March 31, 2002 and 2001: Revenue. Revenue for the three months ended March 31, 2002 was $6.5 million, representing an increase of $130,000 or 2% in comparison to $6.3 million for the comparable 2001 quarter. The increase in revenue was primarily attributable to an increase in fiber sales to two major international customers as well as the impact of a price increase related to the Company's fiber products which went into effect January 1, 2002. Cost of Revenue. Cost of revenue for the three months ended March 31, 2002 was $4.9 million, representing a decrease of $168,000 or 3% in comparison to $5.1 million for the comparable 2001 quarter. Cost of revenue as a percentage of revenue decreased to 76% for the first quarter of 2002 as compared to 80% in the first quarter of 2001. This decrease was attributable to lower manufacturing costs due to production efficiencies. Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses for the three months ended March 31, 2002 were $1.0 million representing a decrease of $110,000 or 10% in comparison to $1.1 million for the comparable 2001 quarter. The decrease in SG&A expenses was principally due to lower marketing costs as well as a reduction in amortization expense amounting to approximately $41,000 per quarter as a result of the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets." Research and Development Expenses. Research and development ("R&D") expenses for the three months ended March 31, 2002 were $437,000 representing a decrease of $285,000 or 39% in comparison to $722,000 for the comparable 2001 quarter. A majority of the decrease in R&D expenses was the result of lower salaries and related personnel costs attributable to a reduction in headcount based on the Company's corporate restructuring program. R&D expenses as a percentage of revenue decreased to 7% for the first quarter of 2002 from 11% for the same period last year. Other Income, Net. Other income for the three months ended March 31, 2002 was $14,000, representing a decrease of $108,000 or 88% in comparison to $122,000 for the comparable 2001 quarter. The decrease was due to a reduction in interest income on lower levels of cash and investments during the first quarter of 2002 as compared to the comparable 2001 quarter as well as an overall reduction in investment yields. Liquidity and Capital Resources: At March 31, 2002, the Company had $6.3 million in cash and investments and $14.4 million of working capital. As a result of achieving operating profitability for the three months ended March 31, 2002, the Company used approximately $5,000 of cash in operations compared with approximately $1.1 million used in the comparable 2001 quarter. Capital expenditures were $48,000 and $1.4 million for the three months ended March 31, 2002 and 2001, respectively. The majority of the capital expenditures in 2001 were a result of expanding the Company's 9 Opta Food Ingredients, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Cambridge, Minnesota oat fiber production facility to meet anticipated future growth. The total cost of the expansion was approximately $3.7 million which was funded out of internal funds and was completed in April 2002. The Company's various debt agreements contain covenants that restrict the Company's ability to participate in merger discussions, pay dividends, limit annual capital expenditures, invest in certain types of securities and obtain additional debt financing without bank approval. The Company was in compliance with respect to all covenants and restrictions in its loan agreements at March 31, 2002. The Company believes that its existing cash and cash equivalents, short term investments, long and short term debt and product sales will be adequate to fund potential future losses as well as its planned operations, capital requirements and expansion needs through the next few years. However, the Company may require additional capital in the long term, which it may seek through equity or debt financing, equipment lease financing or funds from other sources. No assurance can be given that these funds will be available to the Company on acceptable terms, if at all. In addition, because of the Company's need for funds to support future operations, it may seek to obtain capital when conditions are favorable, even if it does not have an immediate need for additional capital at such time. Critical Accounting Policies and Estimates The preparation of the consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an on-going basis, the Company evaluates its estimates, including those related to uncollectible accounts receivable, inventories, goodwill, intangibles and other long-lived assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: . The Company maintains allowances for uncollectible accounts receivable for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. . The Company maintains allowances for estimated excess or obsolete inventories based on the Company's review of inventory levels, projected future sales and comparison of actual manufacturing costs to standard costs. If actual market conditions are less favorable than those projected by management, additional allowances or write-downs may be required. 10 Opta Food Ingredients, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- . Property, plant and equipment, goodwill, patents, trademarks and other intangible assets owned by the Company are amortized over their estimated useful lives. Useful lives are based on management's estimates over the period that such assets will generate revenue. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Future adverse changes in market conditions or poor operating results of underlying capital investments or intangible assets could result in losses or an inability to recover the carrying value of such assets, thereby possibly requiring an impairment charge in the future. Part I Item 3 Quantitative and Qualitative Disclosure about Market Risk - --------------------------------------------------------- Market Rate Risk Market risks relating to the Company's operations result primarily from changes in interest rates and foreign currency exchange rates. The Company currently does not use derivative financial instruments for trading or hedging purposes, and does not consider its exposure in these areas to be material. Interest Rate Risk The Company's exposure to market rate risk for changes in interest rates relates to its cash equivalents and short-term investments. Cash equivalents consist of money market mutual funds and other high-credit quality short-term investments with an original maturity of three months or less. A hypothetical 10% increase in interest rates would not have a material impact on the fair market value of these instruments due to their short maturities. Foreign Currency Exchange Rate Risk The Company conducts a portion of its business outside the United States through its foreign subsidiary. The Company's foreign subsidiary maintains its accounting records in its local currency. Consequently, changes in currency exchange rates may affect the translation of its foreign statement of operations into U.S. dollars, which may in turn affect the Company's consolidated statement of operations. Substantially all of the Company's revenue is invoiced and collected in U.S. dollars. A hypothetical 10% change in foreign currency exchange rates would not have a material impact on the Company's results. 11 Opta Food Ingredients, Inc. Part II - Other Information - -------------------------------------------------------------------------------- Items 1, 2, 3, 4, 5 and 6(b) - Not Applicable. Item 6 (a) Exhibits (11) Basic and diluted net income (loss) per share computation (in thousands, except per share data):
For the three months ended March 31, ----------------------- 2002 2001 ---------- ---------- Net income (loss) $ 86 ($ 499) ========== ========== Weighted average common shares outstanding - basic 10,857 10,788 ========== ========== Weighted average common shares outstanding - diluted 10,857 10,788 ========== ========== Net income (loss) per share - basic $ .01 ($ .05) ========== ========== Net income (loss) per share - diluted $ .01 ($ .05) ========== ==========
For the three months ended March 31, 2002, diluted net income (loss) per share is determined by dividing the net income (loss) by the weighted average shares outstanding including common stock equivalents which represent employee stock options. For the three months ended March 31, 2001, all common stock equivalents have been excluded from weighted average shares outstanding for calculating diluted net income (loss) per share because such equivalents are anti-dilutive. 12 Opta Food Ingredients, Inc. Signatures - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Opta Food Ingredients, Inc. --------------------------- (Registrant) DATE: May 13, 2002 BY: /s/ Arthur J. McEvily, Ph.D. ------------------------------------ Arthur J. McEvily, Ph.D. President and Chief Executive Officer (principal executive officer) DATE: May 13, 2002 BY: /s/ Scott A. Kumf ------------------------------------- Scott A. Kumf Chief Operating Officer, Chief Financial Officer and Treasurer (principal financial and accounting officer) 13 -----END PRIVACY-ENHANCED MESSAGE-----