<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTER ENDED MARCH 31, 1997 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)
(617) 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
------- -------
Number of shares outstanding of each of the issuer's classes of common stock as
of April 30, 1997:
COMMON STOCK, PAR VALUE $.01 10,981,015 SHARES OUTSTANDING
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OPTA FOOD INGREDIENTS, INC.
FORM 10-Q
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Three Months Ended March 31, 1997
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Table of Contents
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Page
Number
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Part I - Financial Information
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Item 1 - Financial Statements
Condensed Balance Sheet (Unaudited)
March 31, 1997 and December 31, 1996 3
Condensed Statement of Operations (Unaudited)
for the Three Months Ended March 31, 1997 and 1996 4
Condensed Statement of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1997 and 1996 5
Notes to Condensed Unaudited Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II - Other Information
- ---------------------------
Items 1 through 6 10
Signatures 11
2
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OPTA FOOD INGREDIENTS, INC.
CONDENSED BALANCE SHEET (in thousands)
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 36,736 $ 37,605
Short term investments - 642
Accounts receivable, net 1,173 1,003
Inventories, net (Note 2) 3,198 3,490
Other current assets 110 136
---------- -----------
Total current assets 41,217 42,876
Fixed assets, net 11,997 11,914
Intangibles, net 849 883
Other assets 256 230
---------- -----------
$ 54,319 $ 55,903
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 1,493 $ 1,492
Accounts payable 643 758
Accrued expenses 984 867
---------- -----------
Total current liabilities 3,120 3,117
Long term debt 3,739 4,117
Deferred revenue and other liabilities 275 300
Stockholders' equity:
Common stock 110 110
Additional paid-in capital 78,996 78,989
Accumulated deficit (31,921) (30,730)
---------- -----------
Total stockholders' equity 47,185 48,369
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$ 54,319 $ 55,903
========== ===========
</TABLE>
3
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OPTA FOOD INGREDIENTS, INC.
CONDENSED STATEMENT OF OPERATIONS (in thousands, except per share data)
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1997 1996
-------- --------
<S> <C> <C>
Revenue:
Product sales $ 2,033 $ 2,470
Contract revenue - 31
-------- --------
2,033 2,501
-------- --------
Cost and expenses:
Cost of revenue 1,567 2,070
Selling, general and administrative 1,028 955
Research and development 994 930
-------- --------
3,589 3,955
-------- --------
Loss from operations (1,556) (1,454)
Other income (expense):
Interest income 480 582
Interest expense (115) (158)
Other expense - (19)
-------- --------
Net loss ($1,191) ($1,049)
======== ========
Net loss per share ($.11) ($.10)
======== ========
Weighted average shares outstanding 10,977 10,764
======== ========
</TABLE>
4
<PAGE>
OPTA FOOD INGREDIENTS, INC.
CONDENSED STATEMENT OF CASH FLOWS (in thousands)
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(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,191) ($1,049)
---------- ----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 311 298
Forgiveness of notes receivable 20 20
Change in assets and liabilities:
Increase in accounts receivable, net (171) (305)
(Increase) decrease in inventories, net 292 (228)
Increase in other assets (20) (90)
Decrease in accounts payable (115) (122)
Increase in accrued expenses 118 102
Increase (decrease) in deferred revenue (30) 97
Increase in other liabilities 5 5
---------- ----------
Total adjustments 410 (223)
---------- ----------
Net cash used in operating activities (781) (1,272)
---------- -----------
Cash flows from investing activities:
Sale of short term investments 642 -
Purchase of fixed assets (338) (58)
Increase in intangible assets (21) (32)
Increase in other assets - (144)
---------- ----------
Net cash provided by (used in) investing activities 283 (234)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 6 44
Principal payments on long term debt (377) (365)
---------- ----------
Net cash used in financing activities (371) (321)
---------- ----------
Net decrease in cash and cash equivalents (869) (1,827)
Cash and cash equivalents at beginning of period 37,605 40,174
---------- ----------
Cash and cash equivalents at end of period $ 36,736 $ 38,347
========== ==========
</TABLE>
5
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION
The condensed unaudited financial statements of Opta Food Ingredients, Inc.
(the "Company" or "Opta") 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, 1997 and
December 31, 1996 and the results of operations for the three months ended
March 31, 1997 and 1996, respectively. The results of operations are not
necessarily indicative of results for a full year.
These financial statements should be read in conjunction with the financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 filed with the Securities and Exchange Commission
pursuant to Section 15(d) of the Securities Exchange Act of 1934. 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. INVENTORIES, NET (Unaudited)
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
Raw materials $ 353 $ 339
Finished goods 2,845 3,151
----------- --------------
$3,198 $3,490
=========== =============
</TABLE>
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out method. Inventories are reflected net of
reserves of $239,000 at March 31, 1997 and December 31, 1996.
3. NET LOSS PER SHARE
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), "Earnings Per Share." This Statement establishes and
simplifies standards for computing and presenting earnings per share. SFAS
128 will be effective for the Company's fourth quarter of 1997, and requires
restatement of all previously reported per share data that are presented.
SFAS 128 replaces primary and fully diluted earnings per share with basic and
diluted earnings per share. The adoption of this standard will have no effect
on the Company's per share calculation as the Company has incurred net losses
since inception.
6
<PAGE>
PART I ITEM 2
OPTA FOOD INGREDIENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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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 GRAS
under current FDA regulations.
The Company began shipping its first product, EverFresh(R), in November 1991,
acquired an oat fiber business in June 1992 and launched Opta(R) Oat Fibers in
September 1992, began shipping OptaGrade(R) in the fourth quarter of 1993,
commercialized CrystaLean(R) and OptaFil(R) in 1994 and introduced OptaMist TM,
Optex(R) and OptaGlaze(R) in June 1996. The Company currently derives
substantially all of its revenue from its Opta Oat Fibers and OptaGrade
products. The Company has not been profitable since inception and expects to
incur additional losses. This discussion should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
the accompanying unaudited condensed financial statements and notes for the
three months ended March 31, 1997 and 1996, respectively.
The following Discussion and Analysis of the Company's Financial Condition and
Results of Operations may contain forward-looking statements based on the
Company's current expectations. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that could cause the actual
results of the Company to be materially different from historical results or any
results expressed or implied by such forward-looking statements. Factors which
could cause actual results to differ from these expectations include 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 need to
secure or build additional manufacturing capacity in order to meet future 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 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;
and general economic conditions.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996:
Revenue. Revenue for the three months ended March 31, 1997 was $2.0 million,
representing a decrease of $468,000 or 19% in comparison to $2.5 million for the
comparable 1996 quarter. The decrease in 1997 first quarter revenue was largely
the result of decreased demand from one of the Company's major customers.
7
<PAGE>
OPTA FOOD INGREDIENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Cost of Revenue. Cost of revenue for the three months ended March 31, 1997 was
$1.6 million, representing a decrease of $503,000 or 24% in comparison to $2.1
million for the comparable 1996 quarter. Cost of revenue as a percentage of
revenue decreased to 77% for the first quarter of 1997 as compared to 83% in the
first quarter of 1996. This percentage decrease was largely the result of
certain improvements in Opta Oat Fibers margins resulting from operating
efficiencies as well as a reduction in manufacturing costs.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the three months ended March 31, 1997 were
$1.0 million representing an increase of $73,000 or 8% in comparison to $955,000
for the comparable 1996 quarter. The increase in SG&A expenses was principally
due to additional advertising and marketing costs as well as an increase in
consulting expenses. Opta anticipates that SG&A expenses will continue to
increase during the remainder of 1997 as the Company expands its sales force and
increases its marketing programs in focusing its efforts to market its products
to consumer food and food service companies.
Research and Development Expenses. Research and development ("R&D") expenses
for the three months ended March 31, 1997 were $994,000 representing an increase
of $64,000 or 7% in comparison to $930,000 for the comparable 1996 quarter. The
increase in R&D expenses was the result of initial operating costs of the
Galesburg facility. Opta anticipates that R&D expenses will continue to
increase during the remainder of 1997 until the Company's Galesburg facility is
fully operational as well as the Company providing technical support for
existing products while pursuing research and development opportunities for
future products and technologies.
Other Income. Other income for the three months ended March 31, 1997 was
$365,000, representing a decrease of $40,000 or 10% in comparison to $405,000
for the comparable 1996 quarter. The decrease is primarily the result of
interest earned on decreased cash and cash equivalents during the first quarter
of 1997 as compared to the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1997, the Company had $36.7 million in cash and cash equivalents
and $38.1 million of working capital. The Company used approximately $781,000
of cash in operations during the three months ended March 31, 1997, compared
with approximately $1.3 million used in the comparable 1996 quarter. The
Company expects to incur significant operating losses as it continues to
increase its investment in the development, production and marketing of its new
and existing products. The Company intends to fund its operating losses
principally through product sales, existing cash and cash equivalents, short
term investments, and long and short term debt.
Capital expenditures were $338,000 and $58,000 for the three months ended March
31, 1997 and 1996, respectively. The higher level of capital expenditures for
the first quarter of 1997 was related to the renovation of the Company's
Galesburg facility.
8
<PAGE>
OPTA FOOD INGREDIENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
In March 1997, the Company signed a commitment letter for a $5 million equipment
line of credit with a local bank. The term of the facility is five years with
interest at the prime rate or 90 day LIBOR plus 2.5%. There were no borrowings
under this facility at March 31, 1997. 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, 1997.
The Company believes that continued expenditure of funds will be necessary to
support its anticipated growth. 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 its planned operations, capital requirements and
expansion needs through at least 1997. However, the Company may require
additional capital in the longer term, which it may seek through equity or debt
financing, collaborative arrangements with corporate partners, 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.
9
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OPTA FOOD INGREDIENTS, INC.
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Items 1, 2, 3, 4, 5 and 6(b) - Not Applicable.
ITEM 6 (A) EXHIBITS
(11) Net Loss Per Share Computation (in thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
1997 1996
---------- -----------
<S> <C> <C>
Net loss ($1,191) ($1,049)
========== ===========
Weighted average shares outstanding 10,977 10,764
========== ===========
Net loss per share ($.11) ($.10)
========== ===========
</TABLE>
Fully diluted loss per share would be identical to primary loss per share as
presented above and therefore is not presented.
10
<PAGE>
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 7, 1997 BY: /s/ Lewis C. Paine, III
------------------------------------
Lewis C. Paine, III
Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
DATE: May 7, 1997 BY: /s/ Scott A. Kumf
------------------------------------
Scott A. Kumf
Chief Financial Officer,
Vice President Administration and Treasurer
(principal financial and accounting officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 36,736,000
<SECURITIES> 0
<RECEIVABLES> 1,173,000
<ALLOWANCES> 0
<INVENTORY> 3,198,000
<CURRENT-ASSETS> 41,217,000
<PP&E> 14,989,000
<DEPRECIATION> 2,992,000
<TOTAL-ASSETS> 54,319,000
<CURRENT-LIABILITIES> 3,120,000
<BONDS> 0
0
0
<COMMON> 110,000
<OTHER-SE> 47,075,000
<TOTAL-LIABILITY-AND-EQUITY> 54,319,000
<SALES> 2,033,000
<TOTAL-REVENUES> 2,033,000
<CGS> 1,567,000
<TOTAL-COSTS> 1,567,000
<OTHER-EXPENSES> 2,022,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,000
<INCOME-PRETAX> (1,191,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,191,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,191,000)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> 0
</TABLE>
