-----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, B9BEbmDuw+54sTj48bspyEPKvfGe4xq9FosIVhoqHroIJc30qJAJa88QT1+jtjcg bKMoBiT+YhUXSn1hk1wLJw== 0000927016-02-005412.txt : 20021112 0000927016-02-005412.hdr.sgml : 20021111 20021112172838 ACCESSION NUMBER: 0000927016-02-005412 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021112 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: 02818065 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 September 30, 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 November 11, 2002, the registrant had 10,887,577 shares of common stock outstanding. Opta Food Ingredients, Inc. Form 10-Q - -------------------------------------------------------------------------------- Quarter Ended September 30, 2002 Table of Contents Page Number ------ Part I - Financial Information - ------------------------------ Item 1 - Financial Statements Consolidated Balance Sheet September 30, 2002 and December 31, 2001 3 Consolidated Statement of Operations for the Three and Nine months Ended September 30, 2002 and 2001 4 Consolidated Statement of Cash Flows for the Nine months Ended September 30, 2002 and 2001 5 Notes to Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3 - Quantitative and Qualitative Disclosure About Market Risk 14 Item 4 - Controls and Procedures 14 Part II - Other Information - --------------------------- Item 1 through Item 6 15 Signatures 16 Opta Food Ingredients, Inc. Consolidated Balance Sheet (in thousands) - ----------------------------------------------------------------------------- (Unaudited) September 30, December 31, 2002 2001 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 7,435 $ 1,579 Short term investments 1,031 4,341 Accounts receivable, net 3,717 3,679 Inventories (Note 3) 5,690 6,124 Prepaid expenses and other current assets 361 164 ------------- ------------- Total current assets 18,234 15,887 Fixed assets, net 21,549 23,249 Patents and trademarks, net 252 331 Goodwill 1,223 1,223 Other assets 1,176 695 ------------- ------------- $42,434 $41,385 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long term debt $ 1,782 $ 333 Accounts payable 1,269 926 Accrued expenses 1,237 963 ------------- ------------- Total current liabilities 4,288 2,222 Long term debt - 1,738 Stockholders' equity: Common stock 113 113 Additional paid-in capital 79,970 79,943 Treasury stock, at cost (1,115) (1,115) Accumulated other comprehensive loss (102) (107) Accumulated deficit (40,720) (41,409) ------------- ------------- Total stockholders' equity 38,146 37,425 ------------- ------------- $42,434 $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 For the nine months ended September 30, September 30, -------------------------- ------------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Product revenue $ 7,223 $ 5,829 $21,087 $19,133 Cost and expenses: Cost of revenue 5,255 5,289 15,637 15,738 Selling, general and administrative 1,311 1,222 3,481 3,728 Research and development 448 680 1,302 2,033 -------- -------- -------- -------- 7,014 7,191 20,420 21,499 -------- -------- -------- -------- Income (loss) from operations 209 (1,362) 667 (2,366) Other income (expense): Interest income 35 84 103 345 Interest expense (32) (43) (104) (136) Other income (expense), net 24 40 23 65 -------- -------- -------- -------- 27 81 22 274 -------- -------- -------- -------- Net income (loss) $ 236 $ (1,281) $ 689 $(2,092) ======== ======== ======== ======== Basic net income (loss) per share (Note 4) $ .02 $ (.12) $ .06 $ (.19) ======== ======== ======== ======== Diluted net income (loss) per share (Note 4) $ .02 $ (.12) $ .06 $ (.19) ======== ======== ======== ======== Weighted average shares outstanding - basic 10,888 10,825 10,867 10,803 ======== ======== ======== ======== Weighted average shares outstanding - diluted 11,003 10,825 10,922 10,803 ======== ======== ======== ========
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 nine months ended September 30, ------------------------------ 2002 2001 ------------ ------------- Cash flows from operating activities: Net income (loss) $ 689 $ (2,092) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Depreciation and amortization 2,141 2,259 Change in assets and liabilities: (Increase) decrease in accounts receivable, net (40) 218 Decrease in inventories, net 434 30 (Increase) decrease in other current assets (197) 33 Increase (decrease) in accounts payable 344 (880) Increase (decrease) in accrued expenses 275 (400) ----------- ------------ Total adjustments 2,957 1,260 ----------- ------------ Net cash provided by (used in) operating activities 3,646 (832) Cash flows from investing activities: Purchase of short term investments (1,464) (2,222) Maturity of short term investments 4,774 4,081 Purchase of fixed assets (336) (3,016) Increase in patents and trademarks (22) (62) Decrease (increase) in other assets (480) 435 ----------- ------------ Net cash provided by (used in) investing activities 2,472 (784) Cash flows from financing activities: Proceeds from issuance of common stock 27 30 Principal payments on long term debt (289) (376) ----------- ------------ Net cash used in financing activities (262) (346) ----------- ------------ Effect of changes in exchange rates on cash - (10) Net increase (decrease) in cash and cash equivalents 5,856 (1,972) Cash and cash equivalents at beginning of period 1,579 6,807 ----------- ------------ Cash and cash equivalents at end of period $7,435 $ 4,835 =========== ============
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 September 30, 2002 and December 31, 2001 and the results of operations for the three and nine months ended September 30, 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's rules and regulations. 2. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets". 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. The Company adopted the provisions of SFAS No. 142 on January 1, 2002, and has therefore recorded goodwill amortization of $41,000 and $123,000 during the three and nine months ended September 30, 2001, which did not recur in 2002. The Company completed the transitional impairment test during the second quarter of 2002 on the unamortized goodwill balance of $1.2 million as of January 1, 2002, which resulted in no impairment loss. 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 a material impact on our consolidated results of operations, financial position or cash flows. 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. 6 Opta Food Ingredients, Inc. Notes to Consolidated Unaudited Financial Statements (Continued) - -------------------------------------------------------------------------------- In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections", which provides guidance on the classification of gains and losses from the extinguishment of debt and on the accounting for certain specified lease transactions. The adoption of SFAS No. 145 is not expected to have an impact on our consolidated results of operations, financial position, or cash flows. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which provides guidance on the recognition and measurement of liabilities associated with disposal activities. The statement is effective for the Company on January 1, 2003. The Company is currently reviewing the provisions of SFAS No. 146 to determine the standard's impact, if any, upon adoption. 3. Inventories Inventories consist of the following (in thousands): September 30, December 31, 2002 2001 -------------------- ------------------- Raw materials $ 882 $ 681 Finished goods 4,808 5,443 -------------------- ------------------- $ 5,690 $ 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 and nine months ended September 30, 2002 is determined by dividing the net income by the weighted average shares outstanding including common stock equivalents of 115,742 and 54,485 shares, respectively which represent employee stock options. For the three and nine months ended September 30, 2001, common stock equivalents have been excluded from the computation of dilutive net income (loss) per share because such equivalents are anti-dilutive. Options to purchase approximately 1.1 million and 1.2 million shares of common stock outstanding during the three and nine months ended September 30, 2002 were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price during the period and therefore, would be anti-dilutive under the treasury stock method. 7 Opta Food Ingredients, Inc. Notes to Consolidated Unaudited Financial Statements (Continued) - -------------------------------------------------------------------------------- 5. Comprehensive Loss Comprehensive income (loss) for the Company is computed as the sum of net income (loss) and the change in the foreign currency translation adjustment, which is the only component of the Company's accumulated other comprehensive income (loss). The Company's comprehensive income for the three months and nine months ended September 30, 2002 was $179,000 and $694,000, respectively. The Company's comprehensive loss for the three months and nine months ended September 30, 2001 was $1,328,000 and $2,152,000, respectively. 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. As of September 30, 2002, restructuring activities have been completed and all severance and related costs have been paid. 7. Subsequent Event On October 25, 2002, the Company entered into a merger agreement with Stake Technology Ltd., pursuant to which Stake Technology's wholly owned subsidiary, Stake Acquisition Corp., will commence an all cash tender offer to purchase all of Opta's outstanding common shares for $2.50 per share. Certain stockholders of the Company, including officers, directors and affiliates, holding approximately 14% of the outstanding common shares, have signed a Stockholders' Agreement with Stake Technology and Stake Acquisition obligating them to tender their shares. The offer is subject to certain closing conditions, including the tender of at least a majority of the Company's outstanding shares, and the offer and subsequent merger of Opta into Stake Acquisition are anticipated to be completed in the fourth quarter of 2002. 8 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. 9 Opta Food Ingredients, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Results of operations for the three months ended September 30, 2002 and 2001: Revenue. Revenue for the three months ended September 30, 2002 was $7.2 million, representing an increase of $1.4 million, or 24% in comparison to $5.8 million for the comparable 2001 quarter. The increase in third quarter revenue was primarily attributable to increased demand for Canadian Harvest(R) fiber products and a significant increase in ingredient systems sales due to the introduction of a new product application for a major quick service restaurant customer. In addition, a 5% price increase for the Company's fiber products that went into effect January 1, 2002 contributed to the overall revenue increase. Cost of revenue. Cost of revenue for the three months ended September 30, 2002 was $5.3 million, representing a decrease of $34,000, or 1% in comparison to $5.3 million for the comparable 2001 quarter. Cost of revenue as a percentage of revenue decreased to 73% for the third quarter of 2002 as compared to 91% in the third quarter of 2001. This decrease was largely the result of a one-time charge of $713,000 in the 2001 period related to the write-off of inventory that no longer met the Company's quality specifications. In addition, cost of revenue in 2002 was favorably impacted by lower fiber manufacturing costs due to efficiencies realized from increased production volumes and improved yields as well as the favorable impact of the 5% fiber products price increase. Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses for the three months ended September 30, 2002 were $1.3 million, representing an increase of $89,000 or 7% in comparison to $1.2 million for the comparable 2001 quarter. A majority of the increase in SG&A expenses was due to additional legal expenses associated with the Company's merger agreement with Stake Technology, Ltd. (see Note 7 to the accompanying consolidated unaudited financial statements) as well as an increase in the accrual for 2002 bonuses. These increases were offset by a reduction in marketing and promotional costs as well as a reduction in amortization expense of approximately $41,000 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 September 30, 2002 were $448,000, representing a decrease of $232,000 or 34% in comparison to $680,000 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. Other Income (Expense). Other income for the three months ended September 30, 2002 was $27,000, representing a decrease of $54,000 in comparison to other income of $81,000 for the comparable 2001 quarter. The decrease was primarily attributable to a reduction in interest income due to lower investment yields on cash and investments during the third quarter of 2002 as compared to the 2001 quarter. Results of operations for the nine months ended September 30, 2002 and 2001: Revenue. Revenue for the nine months ended September 30, 2002 was $21.1 million, representing an increase of $2.0 million, or 10% in comparison with $19.1 million for the first nine months of 2001. The increase in revenue was primarily attributable to increased demand for Canadian Harvest(R) fiber products by major 10 Opta Food Ingredients, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- cereal manufacturers, the addition of several new international accounts and an increase in sales to a major quick service restaurant customer during the first nine months of 2002 as well as the impact of the price increase related to the Company's fiber products which went into effect January 1, 2002. Cost of Revenue. Cost of revenue for the nine months ended September 30, 2002 was $15.6 million, representing a decrease of $101,000, or 1% in comparison to $15.7 million for the comparable 2001 period. Cost of revenue as a percentage of revenue decreased to 74% for the first nine months of 2002 as compared to 82% for the same period in 2001. This decrease was largely the result of lower fiber manufacturing costs due to efficiencies realized from increased production volumes and improved yields as well as the favorable impact of the 5% fiber products price increase. In addition, the 2001 cost of revenue includes a one-time charge of $713,000 related to the write-off of inventory that no longer met the Company's quality specifications. Selling, General and Administrative Expenses. SG&A expenses for the nine months ended September 30, 2002 were $3.5 million, representing a decrease of $247,000 or 7% in comparison to $3.7 million for the comparable 2001 period. A majority of the decrease in SG&A expenses was principally due to lower marketing and promotional costs as well as a reduction in amortization expense of approximately $123,000 for the nine months ended September 30, 2002 as a result of the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets." These decreases were offset by additional legal expenses associated with the Company's merger agreement with Stake Technology, Ltd. as well as an increase in the accrual for 2002 bonuses. SG&A expenses as a percentage of revenue decreased to 16% for the first nine months of 2002 from 19% for the same period last year. Research and Development Expenses. R&D expenses for the nine months ended September 30, 2002 were $1.3 million, representing a decrease of $731,000, or 36% in comparison to $2.0 million for the comparable 2001 period. 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 6% for the first nine months of 2002 from 11% for the same period last year. Other Income (Expense). Other income for the nine months ended September 30, 2002 was $22,000, representing a decrease of $252,000 in comparison to other income of $274,000 for the comparable 2001 period. The decrease was primarily attributable to a reduction in interest income due to lower investment yields on cash and investments during 2002 as compared to the first nine months of 2001. Liquidity and Capital Resources: At September 30, 2002, the Company had $9.5 million in cash and investments and $13.9 million of working capital. For the first nine months of 2002, the Company generated approximately $3.6 million of positive cash flow from operations as compared with the same period in 2001 when the Company used approximately $832,000 to fund operations. 11 Opta Food Ingredients, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Capital expenditures were $336,000 and $3.0 million for the nine months ended September 30, 2002 and 2001, respectively. The higher level of capital expenditures in 2001 is as a result of expanding the Company's Cambridge, Minnesota oat fiber production facility to meet anticipated future growth. The total cost of the expansion to date has been approximately $3.7 million which was funded out of internal funds. The additional production line is anticipated to be operational by the end of 2002. The Company's mortgage loan relating to its corporate head quarters located in Bedford, MA has a balloon payment of $1.6 million due in May 2003. This amount has been included in the current portion of long term debt at September 30, 2002. This mortgage loan agreement contains 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 September 30, 2002. The Company believes that its existing cash and cash equivalents, 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 unaudited 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 unaudited consolidated financial statements: o 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. 12 Opta Food Ingredients, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- o 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. o Property, plant and equipment, 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. 13 Opta Food Ingredients, Inc. 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. Part I Item 4 Controls and Procedures - ----------------------- (a) Evaluation of Disclosure Controls and Procedures. The Company's principal executive officer and principal financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) on November 12, 2002, have concluded that, based on such evaluation, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared. (b) Changes in Internal Controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls. Accordingly, no corrective actions were required or undertaken. 14 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 For the nine months ended September 30, September 30, ------------------------------------ ----------------------------------- 2002 2001 2002 2001 --------------- --------------- ---------------- ---------------- Net income (loss) $ 236 $(1,281) $ 689 $(2,092) =============== =============== ================ ================ Weighted average shares outstanding - basic 10,888 10,825 10,867 10,803 =============== =============== ================ ================ Weighted average shares outstanding - diluted 11,003 10,825 10,922 10,803 =============== =============== ================ ================ Basic net income (loss) per share $ .02 $ (.12) $ .06 $ (.19) =============== =============== ================ ================ Diluted net income (loss) per share $ .02 $ (.12) $ .06 $ (.19) =============== =============== ================ ================
For the three and nine months ended September 30, 2002, diluted net income (loss) per share is determined by dividing the net income by the weighted average shares outstanding including common stock equivalents of 115,742 and 54,485 shares, respectively which represent employee stock options. For the three and nine months ended September 30, 2001, common stock equivalents have been excluded from the computation of dilutive net income (loss) per share because such equivalents are anti-dilutive. Options to purchase approximately 1.1 million and 1.2 million shares of common stock outstanding during the three and nine months ended September 30, 2002 were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price during the period and therefore, would be anti-dilutive under the treasury stock method. 15 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: November 12, 2002 BY: /s/ Arthur J. McEvily, Ph.D. ------------------------------------------ Arthur J. McEvily, Ph.D. President and Chief Executive Officer (principal executive officer) DATE: November 12, 2002 BY: /s/ Scott A. Kumf ------------------------------------------ Scott A. Kumf Chief Operating Officer, Chief Financial Officer and Treasurer (principal financial and accounting officer) 16 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 --------------------------------------------------------- I, Arthur J. McEvily, Ph.D, President and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Opta Food Ingredients, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: November 12, 2002 /s/ Arthur J. McEvily, Ph.D. ----------------------------------------- Arthur J. McEvily, Ph.D. President and Chief Executive Officer (principal executive officer) 17 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 --------------------------------------------------------- I, Scott A. Kumf, Chief Operating Officer and Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Opta Food Ingredients, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): c) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: November 12, 2002 /s/ Scott A. Kumf ----------------------------------------- Scott A. Kumf Chief Operating Officer, Chief Financial Officer and Treasurer (principal financial officer) 18 -----END PRIVACY-ENHANCED MESSAGE-----