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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended DECEMBER 31, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ________ to _________.
Commission File Number 0-19811
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OPTA FOOD INGREDIENTS, INC.
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(Exact name of Registrant as Specified in its Charter)
Delaware 04-3117634
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 Wiggins Avenue
Bedford, Massachusetts 01730
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 276-5100
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
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par value per share
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value, based upon the closing sale price of the
shares as reported by the NASDAQ National Market System, of voting stock held by
non-affiliates (without admitting that any person whose shares are not included
in such calculation is an affiliate) at March 1, 1997 was $63,817,460.
As of March 1, 1997, 10,979,348 shares of the registrant's Common Stock,
$.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Report on Form 10-K.
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PART I
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The following discussion of the Company's business in this Annual Report on Form
10-K contains, in addition to historical statements, forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
significantly from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include the factors
discussed in this section under the caption "Cautionary Statement Regarding
Forward-Looking Statements."
ITEM 1. BUSINESS
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GENERAL
Opta Food Ingredients, Inc. (referred to herein as the "Company" or "Opta")
was incorporated in Delaware on April 23, 1991 and its executive offices are
located at 25 Wiggins Avenue, Bedford, Massachusetts 01730. Its telephone
number is (617)276-5100 and its fax number is (617)276-5101. Opta, CrystaLean,
EverFresh, OptaFil, OptaGlaze, OptaGrade, and Optex are registered trademarks of
the Company.
Opta is a fully integrated developer, manufacturer and marketer of
proprietary food ingredients which it sells to consumer food and food service
companies to improve the nutritional content, healthfulness, texture and taste
of their food products. Opta applies advanced enzymology and protein and
carbohydrate chemistries to develop innovative food ingredients, such as fat
replacers and other texturizing agents, to solve specific customer problems.
Opta creates its products through the modification of inexpensive raw materials
to produce food ingredients that it considers to be Generally Recognized As Safe
("GRAS") under current U.S. Food and Drug Administration ("FDA") regulations. At
December 31, 1996, Opta's products were being used in more than 30 applications
by over 140 different customers, including six of the ten largest U.S. consumer
packaged food companies and the largest quick service restaurant chain.
Opta's products address the growing consumer demand for more healthful food
products. In order to continue to make reduced fat, high fiber and other
nutritional claims under labeling regulations promulgated in 1994 by the FDA
under the Nutrition Labeling and Education Act of 1990 (the "NLEA"), consumer
food companies are reformulating a wide variety of products to reduce or replace
certain food elements, such as fats and oils, with new food ingredients that
preserve or enhance the flavor, texture, mouthfeel or shelf-life of their food
products. Because many consumer food companies have historically devoted
relatively little research to the development of new food ingredients, Opta
believes that there is a significant "technology gap" that has created a
substantial opportunity for innovative food ingredient companies. The food
service industry is also facing many of the same formulation and nutrition
challenges that confront the consumer packaged foods industry. Opta believes
that its problem-solving approach, proprietary technologies and food ingredient
products can be successfully applied in both the food service and consumer
packaged goods industries. To date, Opta has developed a portfolio of products,
each based on a unique and proprietary core technology developed by the Company:
Opta Oat Fibers, launched in 1992, is a group of fiber ingredients derived
from oats that enhance texture, reduce breakage, and extend shelf-life in
baked goods and other foods. Opta Oat Fibers are currently being used in a
variety of products, including breads, cookies, crackers, muffins, taco
shells and ice cream cones. Opta has also worked closely with several
bakeries to develop an optimized hamburger bun formulation incorporating a
proprietary Opta Oat Fibers product. Based on this collaboration, Opta is
currently shipping Opta Oat Fibers to a group of independent bakeries for
use in the production of an optimized hamburger bun for a quick service
restaurant chain.
OptaGrade, launched in late 1993, is a starch-based texturizing agent used
primarily to replace fat in dairy products, which represent the largest
food group for potential fat reduction in the U.S. diet. At December 31,
1996, the Company was selling OptaGrade to more than 30 customers on a
regular basis for use in at least 18 different product applications under a
variety of national and regional brands. OptaGrade is now being used in
commercially available low-fat and non-fat sour creams, and non-fat
versions of margarine-type spreads, whipped topping, cottage cheese,
processed cheeses, cream cheese, yogurts, salad dressing and mozzarella
cheese.
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OptaMist, launched in 1996 and currently being tested by a number of
consumer food companies for a variety of applications, is a starch-based
texturizing agent which can also be used as a fat replacer. The Company
currently intends to market OptaMist as a replacement of up to 100% of the
fat content in applications such as salad dressings, mayonnaise, and
selected dairy products such as yogurt and cream cheese. The Company
believes that OptaMist is GRAS under current FDA regulations.
Optex, launched in 1996 and currently being tested by a number of consumer
food companies for a variety of applications, is a starch-based texturizing
agent and opacifying agent which can also be used as a fat replacer in high
viscosity systems such as reduced fat spreads, sauces, and spoonable
dressings. The Company believes that Optex is GRAS under current FDA
regulations.
OptaGlaze, launched in 1996, is the first ready-to-use aqueous-based
coating derived from wheat gluten. It is used to enhance gloss and
appearance, adhere seeds, nuts or seasonings, and provide microbial
protection to baked goods and snack foods. The Company believes that
OptaGlaze is GRAS under current FDA regulations.
CrystaLean, launched in 1994 and currently being tested by a number of
consumer food companies for a variety of applications, is the first product
in an anticipated family of enzyme-resistant, starch-based bulking and
texturizing agents designed to enhance the crispness and fiber content of
extruded products, such as cereals and snack foods.
OptaFil, launched in 1994 and currently being tested by a number of
consumer food companies for a variety of applications, is the first product
in an anticipated family of non-fat clouding agents for use in certain
beverages and confectionery products where opaque appearance is important,
such as non-dairy coffee creamers, toppings and beverages.
EverFresh, launched in 1991, is an anti-browning enzyme inhibitor used in
the shrimp industry. In December 1992, the Company licensed the exclusive
worldwide rights to market EverFresh for use in shrimp and seafood
processing to Pfizer, who subsequently assigned the license to an unrelated
third party in January 1997.
The majority of revenue for the Company is derived from sales of Opta Oat
Fibers and OptaGrade as well as royalties from EverFresh. Opta is continuing to
work on enhancing OptaMist, Optex, OptaGlaze, CrystaLean and OptaFil, and does
not expect significant revenue from these products in 1997.
Opta also plans to scale-up and Optaglaze several other food ingredient
technologies and products that have completed their initial research and
development phases. These include new proprietary starch-based technologies for
use in a wide variety of texturizing and other fat replacement applications. In
addition, the Company obtained an exclusive license from the United States
Department of Agriculture ("USDA") for a new technological process which the
Company expects to use in the development of new texturizing agents referred to
as "Fantesk". Opta has also developed a group of technologies and products for
edible coatings, edible films, and microencapsulation vehicles. One of these
products, OptaGlaze, is in the commercialization stage.
Opta's priorities over the next two years are to capitalize on its current
opportunities to build a significant Opta Oat Fibers business with its principal
customers; to increase market penetration for OptaGrade in the product
categories where it is currently being sold, as well as to extend its use to
other targeted product categories; to complete the development and commercial
launch of a new, starch-based texturizing product technology that the Company
believes will extend the OptaGrade technology platform into new applications; to
continue the marketing and commercial development of OptaMist, Optex, OptaGlaze,
CrystaLean and OptaFil; to complete the renovation of its recently purchased
Galesburg, Illinois facility which the Company expects will increase the
production capacity of starch-based products; and to continue to innovate next
generation products and technologies based upon specific customer needs and
requests. There can be no assurance that the Company will be successful in
fulfilling any or all of these priorities on a timely basis, or at all, or that,
for various reasons including market conditions, available capital and
management resources, the Company will be able to continue to pursue these
priorities.
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INDUSTRY BACKGROUND AND MARKET OPPORTUNITY
The consumer food products industry is presently being shaped by several
external and internal forces, including increased consumer demand for healthier
food products and new government regulation. According to a recent study, a
majority of American consumers are actively seeking to reduce the fat content
and improve the nutritional content of their diet. A recent survey has reported
that the single most important factor influencing a buying decision among
consumers who read nutritional labels is fat content. Achieving current health
guidelines for fat reduction would require that more than 3 billion pounds of
fat in foods be replaced by other ingredients, such as those developed and
marketed by Opta. Consumer food companies purchase most food ingredients from
outside vendors and combine, blend, and process them into their final product
form. Since they rely chiefly on external vendors to provide existing and new
food ingredients, consumer food companies typically devote only a small portion
of their research efforts to developing new ingredients. In 1996, consumer food
companies in the U.S. introduced more than 13,300 new products into supermarkets
which stock an average of 30,000 food items. Typically, 75% of these new
products are extensions or modifications of existing product lines such as new
flavors, sizes or labeling rather than substantive innovations in content.
Approximately 30% of all new product introductions featured some type of health-
related claim, and approximately 3,000 new products were specifically labeled as
low-calorie or reduced-fat products.
Regulations promulgated under the NLEA enforced as of May 8, 1994 require
that all packaged food labels in use clearly disclose the amount of fat,
calories from fat, fiber content and other key nutrients. As consumers become
more informed about the high fat content and low fiber levels of certain foods,
the Company expects that consumer food companies will continue to reformulate
many foods with ingredients which enhance their appeal to an increasingly
health-conscious public.
The Company has focused a majority of its product development and marketing
efforts on texturizing agents, which include fat replacers and fibers. In 1995,
industry sources projected that the market for fat replacers alone, currently
estimated to be between $150-$300 million, could surpass $1 billion per year.
Because the dairy and baked goods industries comprise the largest segment
opportunities within the fat replacement category, the Company has concentrated
its customer development and sales efforts primarily within these two
industries. Opta also believes that significant opportunities exist for sales of
its food ingredients in the food service and quick service restaurant industry.
In 1994, for the first time in the United States, consumption of food prepared
out of the home exceeded that of food prepared in the home. The food service
industry is now facing many of the same formulation and nutrition challenges
that are now confronting the consumer packaged foods industry, including the
desire to offer customers more healthful and nutritious alternatives.
OPTA'S STRATEGY
The Company's strategy is to help consumer food and food service companies
solve their product formulation problems by developing and selling to them
proprietary value-added food ingredients. Core elements of the Company's
strategy include:
Solving Customer Problems Through Innovation. In contrast to its
competitors, Opta's primary focus is on solving its customers' problems
rapidly through innovation, rather than selling basic raw materials or
products derived from chemical processes. The Company seeks to identify
each customer's needs, establish probable solutions, develop a prototype
food ingredient, and work closely with the customer to develop product
formulations that have the required functional and physical properties that
can be incorporated cost effectively into the customer's food manufacturing
processes. Opta differentiates itself from its competitors by being
dependent neither upon one specific raw material nor a single type of
technology, which gives Opta the flexibility required to solve customer
problems.
Employing Sophisticated Science and Practical Food Industry Experience to
Develop GRAS Food Ingredients. The Company relies upon its ability to
combine proprietary technological advances with practical food industry
experience to solve highly complex and specific food formulation problems
presented by its customers. Opta's research and development effort is
conducted by a team of scientists with expertise in the relevant sciences,
including enzymology and protein and carbohydrate chemistry, who work
alongside experts in food science and chemical engineering. The Company
seeks to modify inexpensive raw materials to produce value-added natural
food ingredients that will be considered GRAS and that permit customers to
have consumer-friendly labels which make natural and other claims for their
products.
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Utilizing a Technically Sophisticated Sales and Marketing Force. Opta
believes that the most important customer contacts occur at the research
and development departments of each of its customers. As a result, the
Company has established and will continue to focus on expanding its direct
sales organization staffed by technically sophisticated and industry
experienced professionals. Opta's technical sales managers, applications,
and research and development teams all work together closely with Opta
customers as "consultants" in defining and developing a range of potential
solutions to their formulation and product development problems. Once Opta
has resolved a customer's problems, it develops a GRAS food ingredient
which it then sells to the customer. In all cases, Opta's sales and
marketing strategy is to provide superior customer service which the
Company believes leads to additional opportunities with existing and
prospective customers.
Extending Core Technologies to Develop New Food Ingredients. The Company
intends to continue to focus on extending its innovative proprietary core
technologies toward the development of new food ingredients and
applications. Opta believes this approach permits it to solve multiple
customer and industry problems without requiring a separate investment for
each solution, while retaining the flexibility to customize solutions for a
wider variety of industry problems. Opta believes that its future growth
will be derived both from internally developed proprietary technology, as
well as from acquisitions of complementary product lines and technologies
where the Company believes it can add value and generate incremental
revenue growth.
OPTA'S PRODUCT DEVELOPMENT PROCESS
All of the Company's product development efforts are derived from
specifically stated and defined customer needs. The Company works closely with
potential customers to develop prototypes that have the required functional and
physical properties and that can be incorporated cost effectively into the
customers' food manufacturing processes. Once prototypes have been developed,
Opta works with these companies to adapt them to specific food applications.
The Company's disciplined multi-step approach to product development includes:
Opportunity Identification and Analysis
The Company's management, applications, technical service, and direct sales
teams maintain close working relationships with leading consumer food and food
service companies. Some of these companies seek Opta's assistance and advice in
attempting to solve their product development problems and formulation needs.
Opta identifies new product opportunities and establishes its product
development portfolio based upon a review of an individual customer's problems
and after consideration of certain criteria, including: size of the potential
market; ability to patent or protect a proprietary position; manufacturing cost
and efficiency; availability of raw materials; and qualification of the
ingredient as GRAS.
Laboratory Development
Once the product development opportunity has been identified, the Company
establishes a product development program beginning with laboratory development.
In this stage, the Company identifies the appropriate raw materials, conducts
"proof of principle" experiments to confirm the utility of the new ingredient,
and makes prototypes for evaluation and testing. These prototypes are also used
during meetings with potential customers to demonstrate progress and to obtain
feedback for desired modifications and improvements. The products continue to be
refined in the laboratory until the customer and Opta believe that one is
sufficiently promising to merit production on a larger scale.
Pilot Plant and Formulation
During the pilot plant stage, Opta manufactures samples for expanded
customer testing and applications development. Generally, potential customers
use these samples to conduct thorough testing on their formulated products and
provide feedback to Opta about the performance of the ingredient. The Company
refines the ingredient based upon the feedback from these tests and based on the
results of its own internal evaluation. During the pilot plant stage, the
Company's scientists and engineers design the commercial manufacturing process
for the ingredient.
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Scale-Up
Once Opta and a potential customer agree that a test ingredient is
functional and practical, the scale-up phase commences. During this phase, the
Company continues to supply samples to potential customers while it verifies the
manufacturing process. It also obtains any final regulatory clearances that may
be required before commercialization.
In Market
After developing a product for a customer's specific use, Opta
commercializes the ingredient for other product applications and for other
customers. Whenever possible, Opta manufactures and markets its own products and
distributes them through its direct sales organization within the U.S. and
through strategic partners internationally.
OPTA'S PRODUCT PORTFOLIO
Opta's products currently in the marketplace include Opta Oat Fibers,
OptaGrade, OptaMist, Optex, OptaGlaze, CrystaLean and OptaFil. In addition, the
Company's sulfite replacer, EverFresh, has been licensed to an unrelated third
party and is marketed to the seafood industry to prevent the enzymatic browning
of shrimp.
TEXTURIZING AGENTS
Opta's product development and marketing efforts continue to be focused
primarily upon texturizing agents, which include fat replacers. Fat is an
integral part of many of the most frequently consumed foods, including dairy
products, red meat, poultry, seafood, bakery products, salad and cooking oils,
cooking sauces and even vegetables. It is a challenge to successfully replace
dietary fat in most foods because fat provides nutritional benefits and imparts
important functional characteristics when present. Nutritionally, fats are a
source of energy and an important carrier of certain vitamins. Functionally, fat
provides the creamy mouthfeel, smooth texture and proper opacity (creamy white
appearance) that is appealing in dairy products. Fat also helps to hold products
together and provide good consistency. It also retains heat and helps to keep
food warm. In many foods, the features most desired by consumers are directly
attributable to the fat portion of the product. Since fat serves a variety of
functions, it must be replaced by either a single multi-functional ingredient or
by a mixture of ingredients, each having its own unique functionality. The best
ingredient approach for replacing fat in foods can, therefore, vary by the
desired attributes of the type of food and the most efficient source of
functionality to achieve those attributes. Opta believes that specifically
tailored texturizing agents must be developed to meet the particular textural,
taste and processing requirements of each high-fat food category. In addition to
fat replacers, texturizing agents include clouding agents and bulking agents.
Opta Oat Fibers
Opta Oat Fibers are a family of oat fiber-based texturizing agents with
high water binding capacity used to provide caloric reduction, dietary fiber
fortification, improved strength, reduced breakage and to extend the shelf life
in food products. Opta Oat Fibers are currently being used in baked goods,
breads, cereals, cookies, crackers, ice cream cones, meats, muffins, snack
foods, taco shells and hamburger buns. In June 1992, Opta acquired an oat fiber
production facility and related patented process technology. Prior to the
acquisition, the oat fibers had been sold primarily as a commodity product to
add dietary fiber and bulk to certain food products. Opta applied its
technological expertise to develop enhancements to the production process that
allow for the customization of the water holding capacity and particle size of
fibers to solve specific customer formulation problems. The Company believes
that Opta Oat Fibers are GRAS under current FDA regulations.
As a result of growing customer demand and opportunities for Opta Oat
Fibers, during 1995 the Company expanded its Opta Oat Fibers facility in
Louisville, Kentucky to double the plant's capacity. With this additional
capacity, Opta expects that it will be able to meet its current customers'
orders. There can be no assurance that there will not be limitations on
manufacturing capacity for Opta Oat Fibers or that the Company will not
experience difficulty in producing Opta Oat Fibers at levels necessary to meet
the requirements of its current or future customers on a timely basis, if at
all, or that the Company will be able to add to its capacity to manufacture Opta
Oat Fibers.
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OptaGrade
OptaGrade is a starch-based, neutral-tasting, heat-stable texturizing agent
which can be used as a fat replacer. OptaGrade is designed to replace up to 100%
of the fat content of certain foods and can provide mouthfeel and texture
similar to fat, while enabling significant calorie reduction in the food
products in which it is incorporated. Compared to other starch-based fat
replacers being marketed, the Company believes OptaGrade has several significant
advantages. The Company believes that OptaGrade can be used to replace higher
levels of fat than many competitive products while providing a mouthfeel and
texture similar to fat. In certain foods, such as sour cream, cream cheese and
salad dressing, OptaGrade performs well at replacing 100% of fat content. Unlike
some other starch-based fat replacers, OptaGrade has been demonstrated to be
effective in a variety of foods which require heat processing and a "non-
starchy" bland taste. Because it is not chemically modified, OptaGrade can be
listed on ingredient statements as corn starch.
Opta made its first commercial sale of OptaGrade in December 1993 for use
in sour cream. At December 31, 1996, the Company was selling OptaGrade to more
than 30 customers on a regular basis for use in at least 18 different product
applications under a variety of national and regional brands. OptaGrade is now
being used in commercially available low-fat and non-fat sour creams, and non-
fat versions of margarine-type spreads, whipped topping, cottage cheese,
processed cheeses, cream cheese, yogurts, salad dressing and mozzarella cheese.
The Company believes that OptaGrade is GRAS under current FDA regulations.
OptaGrade is produced through a patented process that physically modifies a
natural form of starch. The proprietary base for OptaGrade is manufactured on
Opta-owned production lines installed at a contract manufacturer's facility. As
a result of the growing customer demand for OptaGrade, the Company doubled its
OptaGrade production capacity during the first quarter of 1995. Two OptaGrade
production lines produce OptaGrade to fill customer orders and to increase
inventory levels in anticipation of prospective new customers and applications.
In May 1996, the Company acquired a 35,000 square foot manufacturing facility in
Galesburg, Illinois. The facility is being renovated and the Company
anticipates the facility to be operational in 1997. The facility is expected to
significantly increase the Company's production capacity for its starch-based
food ingredient products including OptaGrade, OptaMist and Optex.
OptaMist
OptaMist, launched in 1996 and currently being tested by a number of
consumer food companies for a variety of applications, is a starch-based
texturizing agent which can also be used as a fat replacer. The Company
currently intends to market OptaMist as a replacement of up to 100% of the fat
content in applications such as salad dressings, mayonnaise, and selected dairy
products such as yogurt and cream cheese. The Company believes that OptaMist is
GRAS under current FDA regulations.
Optex
Optex, launched in 1996 and currently being tested by a number of consumer
food companies for a variety of applications, is a starch-based texturizing and
opacifying agent which can also be used as a fat replacer in high viscosity
systems such as reduced fat spreads, sauces, and spoonable dressings. The
Company believes that Optex is GRAS under current FDA regulations.
OptaGlaze
OptaGlaze, launched in 1996, is the first ready-to-use aqueous-based
coating derived from wheat gluten. It is used to enhance gloss and appearance,
adhere seeds, nuts or seasonings, and provide microbial protection to baked
goods and snack foods. The Company believes that OptaGlaze is GRAS under
current FDA regulations.
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CrystaLean
CrystaLean, launched in 1994 and currently being tested by a number of
consumer food companies for a variety of applications, is the first product in
an anticipated family of enzyme-resistant, starch-based bulking and texturizing
agents designed to enhance the texture and add fiber to certain foods.
CrystaLean can be used in extruded food products, such as cereals and snack
foods, to maintain shape and texture as well as to add dietary fiber and to
preserve the crispness of cereal in milk. The Company believes this product is
not yet optimized and continues to make enhancements based on customer feedback.
The Company believes that CrystaLean is GRAS under current FDA regulations.
OptaFil
OptaFil, launched in 1994 and currently being tested by a number of
consumer food companies for a variety of applications, is being evaluated as a
non-fat clouding agent which provides desired opacity for use in applications
where an opaque, rather than transparent, appearance is important to product
acceptance. OptaFil was developed by the Company's scientists at the request of
customers seeking to reduce or eliminate the presence of undesirable chemicals
and fat in opacifying agents. Potential uses for the product include non-dairy
coffee creamers and toppings, certain beverages and other food products. The
Company believes this product is not yet optimized and continues to make
enhancements based on customer feedback. The Company believes that OptaFil will
be considered GRAS under current FDA regulations.
Next Generation Starch Technology
The Company intends to extend its proprietary technology in starch-based
ingredients through the application of different processing methods and
conditions to create new ingredients with unique functionality for salad
dressings, cheese and other cultured dairy products. Co-processing of starch
with other ingredients under these conditions adds another dimension to creating
families of products with unique functionalities.
As part of this strategy, the Company obtained an exclusive license from
the USDA for a proprietary new process technology referred to as "Fantesk" by
the USDA, which involves co-processing starch, hydrocolloids and oil to create
new food ingredients. Under the terms of the agreement, the Company will
provide annual license fees and royalty payments.
EDIBLE COATINGS
Edible coatings provide a barrier between a food product and the elements
in its environment, such as moisture or oxygen, that can cause quality
deterioration. Other uses for edible coatings are to provide a barrier at the
interface between food layers with different moisture levels (thereby preventing
moisture migration), to reduce fat absorption in foods, or to provide an
attractive gloss or sheen to product appearance. The Company believes that all
of its coating products will be considered GRAS under current FDA regulations.
OptaGlaze
OptaGlaze is an edible protein-based latex coating that may be applied to
food products to provide a glossy surface appearance. Potential customer
applications include baked goods and confections. OptaGlaze has completed the
development stage and is in the commercialization stage currently being tested
in customer applications.
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SULFITE REPLACERS
EverFresh
EverFresh is a commercially available, readily dissolvable powder that is
used in place of sulfites to prevent enzymatic browning of shrimp, or
"blackspot". EverFresh prevents blackspot by safely deactivating the enzyme that
causes the discoloration, and does not affect the taste, color or texture of
shrimp. The Company believes that the product is GRAS under FDA regulations. In
December 1992, Opta licensed to Pfizer the exclusive worldwide rights to market
EverFresh for use in shrimp and seafood processing, which were subsequently
assigned to an unrelated third party in January 1997.
The Company continues to re-evaluate the portfolio of pipeline products in
an effort to focus its research and development resources on product market
opportunities. As a result of this evaluation, the number of new products in
laboratory development have been significantly scaled back. This increased
focus of research and development resources is intended to accelerate
commercialization of new products and technologies, as well as provide support
for the growth of existing products. There can be no assurance that this
increased focus on research and development will accelerate the
commercialization of new products, provide support for the growth of existing
products or otherwise lead to any such commercialization or growth.
COLLABORATIONS
In June 1991, Opta entered into a collaborative relationship with Pfizer,
which included an equity investment in the Company. Pfizer purchased additional
shares of the Company's Common Stock in 1994 and 1995. Separate from the equity
investments, Opta licensed to the Pfizer Food Science Group the exclusive,
worldwide right to manufacture and market EverFresh for use in seafood
processing, and the exclusive rights to manufacture and market certain Opta Oat
Fibers and OptaGrade products outside the U.S. in exchange for license fees and
royalty payments. In January 1997, all agreements with Pfizer were terminated
except for the EverFresh license agreement which was assigned to an unrelated
third party.
During 1994, the Company entered into a licensing agreement with National
Starch & Chemical Company ("National Starch"), whereby National Starch has
agreed to manufacture CrystaLean, which Opta markets through its direct sales
organization. Under the agreement, each party has licensed to the other its
patent rights related to certain starch technology. The term of the agreement
extends until the expiration of all of Opta's and National Starch's patent
rights licensed under the agreement.
CUSTOMERS, SALES AND MARKETING
Customers
As of December 31, 1996, Opta's products were being used in more than 30
different applications by over 140 different customers, including six of the ten
largest U.S. consumer packaged food companies and the largest quick service
restaurant chain. In the competitive consumer food and food service industries,
product formulations are competitive assets, and, as a result, the Company's
customers and prospective customers generally require Opta to retain their
identity in strict confidence. As a consequence, Opta is typically prohibited
from revealing any such product or customer information without their consent.
There were no individual customers during the years ended December 31, 1996
and 1995 representing greater than 10% of total revenue. During the year ended
December 31, 1994, the Company had sales to four customers which approximated
16%, 11%, 11% and 10% of revenue. Export sales were 11% ( 3% to Europe and 8% to
the Middle East); 18% (10% to Europe and 8% to the Middle East); and 26% (16% to
Europe and 10% to the Middle East) for the years ended December 31, 1996, 1995
and 1994, respectively.
-9-
<PAGE>
Sales and Marketing
Opta believes that the most important customer contacts occur at the
research and development departments of each of its customers. As a result, the
Company has established a direct sales organization staffed by technically
sophisticated and industry experienced professionals who are responsible for
calling on current and potential customers. Opta's technical sales managers,
applications, and research and development teams all work closely with potential
customers as "consultants" to define formulation and product development
problems and to develop a range of potential solutions. Consequently, Opta
focuses on innovating proprietary core technologies that will provide it with
the ability to solve multiple customer and industry problems without requiring a
separate investment for each solution, while retaining the flexibility to
customize solutions for a wider variety of industry problems.
In certain cases where the capital investment required for establishing a
sales and marketing force exceeds Opta's near-term resources, the Company has
established and may seek commercial partnerships with major corporations. See
"Collaborations."
MANUFACTURING
During 1995, the Company expanded its Opta Oat Fibers facility in
Louisville, Kentucky to double the plant's capacity. With this additional
capacity, the Company expects that it will be able to meet its customers'
orders. In addition, as a result of growing customer demand for OptaGrade, the
Company doubled its OptaGrade production capacity during the first quarter of
1995. Two OptaGrade production lines produce OptaGrade to fill customer orders
and to increase inventory levels in anticipation of new customers and
applications. In May 1996, the Company acquired a 35,000 square foot
manufacturing facility in Galesburg, Illinois. The facility is being renovated
and the Company anticipates the facility to be operational in 1997. The
facility is expected to significantly increase the Company's production capacity
for its starch-based food ingredient products including OptaGrade, OptaMist and
Optex. There can be no assurance that the demand for the Company's products
will increase or remain at current levels to justify any such additional
capacity, or that the Company will be able to add to its manufacturing capacity
in the future.
COMPETITION
The food ingredients industry is intensely competitive. Competitors include
major chemical companies, other food ingredient companies and those consumer
food companies that also engage in the development and sale of food ingredients.
Many of these competitors have substantially greater financial and technical
resources as well as production and marketing capabilities than the Company. In
addition, many of the Company's competitors have significantly greater
experience than the Company in the testing of new or improved products.
The fat replacer segment of the texturizing agent market is particularly
competitive. Many companies are engaged in the development of fat replacers and
other food ingredient products, and have introduced a number of fat replacers.
Few of these fat replacers have succeeded and none has become dominant. Opta
believes that specifically tailored fat replacers must be developed to meet the
particular textural, taste and processing requirements of each high-fat food
category. The Company, therefore, is developing a number of separate and
distinct products to eliminate or reduce the fat content of certain foods under
specific conditions.
The fiber segment of the texturizing agent market is large and competitive.
Besides competing with other oat fiber companies, Opta competes directly and
indirectly with producers of other types of fiber including soy and sugar beet.
Opta believes that the Company will be able to use its scientific expertise and
proprietary knowledge to manipulate oat fiber so that it can be used to improve
the texture of foods in a manner that offers certain advantages over competitive
fiber products, but there can be no assurance that any such advantages will be
realized. Opta is currently developing several oat fiber products that it
believes will be proprietary.
The Company believes that its success in competing with others will be
based on retaining scientific and technical expertise, identifying customer
needs for food ingredient solutions to solve food processing problems, rapidly
innovating and developing new food ingredients, developing food ingredients
which are GRAS and successfully testing, producing and marketing these products.
-10-
<PAGE>
PATENTS AND TRADE SECRETS
The Company's policy is to protect its technology by, among other things,
filing patent applications for technology relating to the development of its
business in the U.S. and in selected foreign jurisdictions. The Company has 25
issued U.S. patents and has 13 pending U.S. patent applications relating to
products at various stages of technological development. Certain of the U.S.
issued patents and pending patent applications have corresponding foreign patent
applications.
The Company's success will depend, in part, on its ability to protect its
products and technology under U.S. and international patent laws and other
intellectual property laws. The Company believes that it owns or has the right
to use all proprietary technology necessary to manufacture and market its
products under development. There can be no assurance, however, that patent
applications relating to the Company's products or technology will result in
patents being issued or that current or additional patents will afford
protection against competitors with similar technology. In addition, companies
that obtain patents claiming products or processes that are necessary for or
useful to the development of the Company's products can bring legal actions
against the Company claiming infringement.
The Company also relies on trade secrets and proprietary know-how to
protect certain of its technologies and processes. To protect its proprietary
know-how, the Company requires all employees, consultants, advisors and
collaborators to enter into confidentiality agreements which prohibit the
disclosure of proprietary information to any third party or use of proprietary
information for commercial purposes. Employees of the Company also agree to
disclose and assign to the Company all methods, improvements, modifications,
developments, discoveries and inventions conceived on Company time, using
Company property or which relate to the Company's business. There can be no
assurance, however, that the foregoing agreements will effectively prevent
disclosure of the Company's confidential information or provide meaningful
protection for the Company's confidential information if there is unauthorized
use or disclosure, or that others will not develop substantially equivalent
proprietary information or techniques. Similarly, there can be no assurance that
the Company's outside partners and contract manufacturers will be prevented from
gaining access to the Company's proprietary technology and confidential
information.
REGULATORY FRAMEWORK
Opta's food ingredient products are regulated under the 1958 Food Additive
Amendments to the Federal Food, Drug and Cosmetic Act of 1938 (the "Act"), as
administered by the FDA. Under the Act, pre-marketing approval by the FDA is
required for the sale of a food ingredient which is a food additive unless the
substance is GRAS under the conditions of its intended use by experts qualified
by scientific training and experience to evaluate the safety of food
ingredients. A food additive is any substance, "the intended use of which
results or may reasonably be expected to result, directly or indirectly, in its
becoming a component or otherwise affecting the characteristics of any food."
Such pre-marketing approval for ingredients that are not GRAS, which is issued
in the form of formal regulation, requires a showing both that the food
ingredient is safe under its intended conditions of use and that it achieves the
function for which it is intended. GRAS status can be established in two ways,
either by "self-affirmation" in which the producer determines on its own that
the ingredient is GRAS, or by the issuance of a "GRAS affirmation regulation" by
the FDA in response to a GRAS petition. A food ingredient may be deemed GRAS
under the conditions of its intended use based upon its history of common use in
foods prior to 1958, or based upon scientific procedures which produce the same
quantity and quality of scientific evidence as would be required for the FDA to
issue a pre-market approval of the sale of a food additive.
In either case, in order to establish that a product is GRAS, it must not
only actually be safe in its intended use, but it must be generally recognized
as such. Therefore, all data material to the determination of GRAS status must
be published or otherwise generally available to experts in the field. Based on
the published data, a determination of GRAS status can then be made on behalf of
the producer by a panel of experts, such as Opta's Regulatory Advisory Board,
who review the publicly available information and certify that they have
reviewed such data and regard the ingredient as safe and GRAS. The certification
can then form the basis of a self-affirmation or a GRAS petition.
If a food ingredient is not entitled to GRAS status, pre-market approval
must be sought through the filing of a Food Additive Petition. This time-
consuming process requires the development and submission of substantial data to
establish safety and functionality and can take many years and be very
expensive. Moreover, unlike a food ingredient for which a GRAS self-affirmation
is made, a food ingredient which is the subject of a Food Additive Petition
cannot be marketed until the petition is approved by the FDA.
-11-
<PAGE>
Once the FDA has determined that a Food Additive Petition or a GRAS
petition meets the statutory criteria, it grants pre-market approval or affirms
GRAS status by issuing a formal regulation. The issuance of a regulation
requires publication, a comment period and all of the formalities of the
issuance of any regulation. The regulation is not a private license to the
petitioner; rather, it is a general approval of the ingredient and any entity is
entitled to sell a product based on the regulation, subject to compliance with
trade secrecy and patent laws.
Countries other than the United States also regulate the sale of food
ingredients into the food stream. Regulations vary substantially from country to
country, and Opta takes appropriate steps to comply with such regulations as
necessary.
Opta Oat Fibers, OptaGrade, OptaMist, Optex, OptaGlaze, CrystaLean, OptaFil
and EverFresh are being marketed pursuant to GRAS self-affirmation. Opta
believes that the other products for which it has retained commercial rights
will also be determined to be GRAS. However, such status cannot be determined
until actual formulations and uses are finalized, and Opta will then decide
whether self-affirmation procedures or a GRAS petition will be appropriate.
Certain of the Company's products may require a Food Additive Petition and in
the event that one is required, the Company may elect to sell or license its
rights to another party. There can be no assurance that the Company will be
successful in bringing its products to market based on its determination that
such products meet these criteria.
HUMAN RESOURCES
At December 31, 1996, Opta employed 63 full-time employees, 12 of whom hold
Ph.D. or other advanced scientific degrees. Many of the Company's management and
professional employees have had prior experience with consumer food companies.
None of the Company's employees is covered by collective bargaining agreements,
and management considers relations with its employees to be good.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K under the captions "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. 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 the historical results or from 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.
ITEM 2. PROPERTIES
- -------------------
The Company owns a 45,000 square foot building in Bedford, Massachusetts
which the Company uses for its headquarters, pilot plant, research and
development laboratories and general corporate offices. Approximately 15,000
square feet of space in this building is leased to a third party under a lease
expiring in September 1999. In addition, the Company subleases approximately
24,000 square feet in Louisville, Kentucky, for a term expiring in 2005. This
space is occupied by the Company's Opta Oat Fibers manufacturing plant,
warehouses, related laboratories and offices. In May 1996, the Company acquired
a 35,000 square foot manufacturing facility in Galesburg, Illinois. The
facility is being renovated and the Company anticipates the facility to be
operational in 1997 supporting the production of its starch-based food
ingredient products.
-12-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
currently not a party to any legal proceedings, the adverse outcome of which,
individually or in the aggregate, management believes would have a material
adverse effect on the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable.
EXECUTIVE OFFICERS
See Item 10 below.
-13-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
The Company's Common Stock is traded on the NASDAQ Stock Market under the
symbol "OPTS", and is listed on NASDAQ's National Market System. The following
table sets forth the high and low closing sales prices for the Company's Common
Stock as reported by the NASDAQ National Market for each of the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 High Low
----------------------------------- ------ -------
<S> <C> <C>
First Quarter 7 1/4 5 5/8
Second Quarter 14 1/8 6 3/4
Third Quarter 17 3/8 13 9/16
Fourth Quarter 17 10 5/8
Year Ended December 31, 1996
-----------------------------------
First Quarter 13 7/8 6 1/2
Second Quarter 19 1/2 9 7/8
Third Quarter 10 3/8 5 7/8
Fourth Quarter 9 3/4 5 1/8
</TABLE>
The Company has never paid a cash dividend. The Company intends to
retain all of its earnings, if any, for use in its business and does not intend
to pay cash dividends in the foreseeable future. In addition, certain of the
Company's loan agreements contain covenants that restrict the Company's ability
to pay dividends. Future dividend policy will depend, among other factors, upon
the Company's earnings and its financial condition.
As of March 1, 1997, there were approximately 275 holders of record of
the Company's Common Stock (approximately 2,400 beneficial holders).
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------
The following selected financial data for the five years ended
December 31, 1996 has been derived from the Company's financial statements
audited by Price Waterhouse LLP, independent accountants. The Company's
financial statements and the report thereon are included elsewhere in this
Annual Report on Form 10-K. The information below should be read in conjunction
with the Company's financial statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in Item 7.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $ 9,229 $ 7,067 $ 4,821 $ 3,396 $ 1,691
Cost of revenue 7,409 6,340 4,209 3,113 1,723
Selling, general and
administrative expenses 3,868 2,725 2,397 2,473 1,531
Research and development expenses 4,038 3,102 3,018 3,626 2,861
Loss from operations (6,086) (5,100) (4,803) (5,816) (4,424)
Net loss (4,527) (4,197) (4,596) (5,733) (3,953)
Net loss per share (1) (.42) (.48) (.75) (1.19) (.99)
</TABLE>
(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
-14-
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets $42,876 $48,848 $16,055 $ 8,212 $14,776
Total assets 55,903 61,269 25,423 18,204 18,942
Current liabilities 3,117 3,152 1,928 1,621 752
Long term liabilities 4,417 6,125 4,544 4,549 508
Total stockholders' equity 48,369 51,992 18,951 12,034 17,682
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
The following Discussion and Analysis of the Company's Financial Condition and
Results of Operations contained in this Annual Report on Form 10-K contains, in
addition to historical statements, forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ significantly from
the results discussed in the forward-looking statements. 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."
INTRODUCTION
Opta Food Ingredients, Inc. 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, in November
1991, acquired an oat fiber business in June 1992 and launched Opta Oat Fibers
in September 1992, began shipping OptaGrade in the fourth quarter of 1993,
commercialized CrystaLean and OptaFil in 1994 and introduced OptaMist, Optex and
OptaGlaze 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 section titled "Business", the
financial statements, and the notes to the financial statements, included
elsewhere in this Annual Report on Form 10-K.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
- ---------------------
Revenue. Revenue for the year ended December 31, 1996 was $9.2 million
representing an increase of $2.1 million or 31% over 1995 revenue of $7.1
million. The increase in 1996 revenue reflects the increase in product sales due
to continued commercial sales of OptaGrade and Opta Oat Fibers by new and
existing customers.
Cost of Revenue. Cost of revenue for the year ended December 31, 1996
was $7.4 million representing an increase of $1.1 million or 17% over 1995 cost
of revenue of $6.3 million. Cost of revenue as a percentage of revenue
decreased to 80% in 1996 as compared to 90% in 1995. This decrease reflects
certain improvements in OptaGrade and Opta Oat Fibers margins resulting from
operating efficiencies related to increased production capacity. Opta is
attempting to further reduce its cost of revenue as a percentage of revenue in
1997 due to manufacturing efficiencies gained from increased production volume,
although there is no assurance that such reductions will be realized.
-15-
<PAGE>
Selling, General and Administrative Expenses. Selling, General and
Administrative ("SG&A") expenses for the year ended December 31, 1996 were $3.9
million representing an increase of $1.1 million or 42% over 1995 SG&A expenses
of $2.7 million. SG&A expenses as a percentage of revenue increased to 42% in
1996 from 39% in 1995. The increase in SG&A expenses was due to hiring of
additional sales and marketing staff and related expenses in addition to
increased consulting expenses in 1996. Opta anticipates that SG&A expenses will
increase in 1997 as it expands 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 year ended December 31, 1996 were $4.0 million representing an
increase of $.9 million or 30% over 1995 R&D expenses of $3.1 million. R&D
expenses as a percentage of revenue were 44% in both 1996 and 1995. The
increase in R&D expenses is the result of pilot plant trials related to new
product development, initial operating costs of the new Galesburg, Illinois
production facility and increases in salaries and related expenses including
recruiting costs. Opta anticipates that R&D expenses will increase in 1997 as
the Company provides technical support for existing products while pursuing
research and development operations for future products and technologies.
Other Income. Other income for the year ended December 31, 1996 was
$1.6 million representing an increase of $.7 million or 73% as compared to 1995
other income of $.9 million. The increase reflects the interest earned on
increased cash and cash equivalents resulting from proceeds of the Company's
public offering of common stock in the third quarter of 1995 and the exercise of
warrants to purchase common stock associated with the Company's 1994 private
placement.
1995 COMPARED TO 1994
- ---------------------
Revenue. Revenue was $7.1 million for the year ended December 31,
1995, an increase of $2.2 million or 47% over 1994. The increase resulted from
an approximate 53% increase in product sales due to increased commercial sales
of OptaGrade by new customers and in existing applications by current customers.
In addition, in 1995 the Company began commercial shipments of Opta Oat Fibers
for proprietary use in hamburger buns by a quick service restaurant chain. The
Company sells Opta Oat Fibers to a group of independent bakeries who in turn
produce buns based on the chain's proprietary formula. The Company also
received $0.3 million in licenses and fees in 1995 as compared to $0.4 million
in 1994. The decrease related primarily to non-recurring license revenue
received from Pfizer in the third quarter of 1994.
Cost of Revenue. Cost of revenue was $6.3 million for the year ended
December 31, 1995, an increase of $2.1 million or 51% over 1994. Cost of
revenue as a percentage of revenue increased to 90% in 1995 from 87% in 1994.
This increase reflects the increased product sales, as well as one-time start-up
costs resulting from the expansion of the Company's Oat Fibers facility, offset
by certain improvements on OptaGrade margins resulting from increased production
efficiencies.
Selling, General and Administrative Expenses. SG&A expenses were $2.7
million for the year ended December 31, 1995, an increase of $0.3 million or 14%
over 1994. SG&A expenses as a percentage of revenue decreased to 39% in 1995
from 50% in 1994. The increase in SG&A expenses was due to the hiring of
additional sales and marketing staff and related travel expenses, partially
offset by decreases in consulting and recruiting expenses.
Research and Development Expenses. R&D expenses were $3.1 million for
the year ended December 31, 1995, an increase of $0.1 million or 3% over 1994.
R&D expenses as a percentage of revenue decreased to 44% in 1995 from 63% in
1994. The higher R&D expenses are the result of increases in the technical
service efforts of the Company's applications development team and outside
analytical services related to quality control, partially offset by decreases in
consulting and regulatory expenses.
Other Income. Other income was $0.9 million for the year ended
December 31, 1995, an increase of $0.7 million or 336% over 1994. The increase
reflects the interest earned on increased cash and cash equivalents balances
resulting from funds received in 1995 from both the exercise of warrants
associated with the 1994 private placement and a public offering of the
Company's common stock in the third quarter of 1995.
-16-
<PAGE>
INCOME TAXES
At December 31, 1996, the Company had available net operating loss
carryforwards of approximately $24.3 million for income tax purposes. In
addition, the Company had approximately $0.6 million of unused research and
development tax credits. Ownership changes, as defined in the Internal Revenue
Code, resulting from the Company's initial public offering in March 1992 and a
second public offering in August 1995, have limited the amount of net operating
loss and tax credit carryforwards that can be utilized annually to offset future
taxable income or tax liabilities. As a result, the amount of these net
operating losses and tax credit carryforwards which can be utilized annually is
$3.0 million for losses incurred prior to March 1992 and $9.1 million for losses
incurred prior to August 1995. These net operating loss and credit
carryforwards expire at various dates between 2006 and 2011. Subsequent changes
in ownership could further affect the limitation in future years.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had approximately $38.2 million in cash
and cash equivalents and short term investments and approximately $39.8 million
of working capital. Cash and cash equivalents increased during 1995 due to the
exercise of warrants and sale of common stock in a public offering. Certain
holders of warrants issued in connection with the Company's 1994 private
placement exercised their warrants in 1996 and 1995 to purchase 76,000 and
879,500 shares of the Company's common stock, yielding approximately $.4 million
and $4.2 million to the Company after issuance costs respectively. Warrants to
purchase an aggregate of 181,526 shares of common stock, exercisable at $7 per
share through June 15, 1997, remain outstanding. In September 1995, the Company
completed the sale and issuance of 2,300,000 shares of its common stock in a
public offering, resulting in net proceeds to the Company of approximately $32.0
million.
The Company used approximately $4.6 million of cash in operations during
the year ended December 31, 1996 compared with approximately $5.1 million in
1995. 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. Inventories increased from
approximately $2.2 million at December 31, 1995 to $3.5 million at December 31,
1996. The increase in inventories is related to the buildup of inventory levels
for anticipated future sales of OptaGrade and Opta Oat Fibers, which the Company
believes is appropriate given the current level of sales for the Company's
products.
Capital expenditures for the years ended December 31, 1996 and 1995 were
approximately $1.8 million and $3.8 million, respectively. The higher level of
capital expenditures for 1995 is primarily related to the expansion of the
Company's Oat Fibers production facility. The Company's various debt agreements
contain covenants that restrict the Company's ability to participate in merger
discussions, to pay dividends, to make capital expenditures over a certain
limit, to invest in certain types of securities and to obtain additional debt
financing without the approval of the bank. The Company was in compliance with
respect to all covenants and restrictions in its loan agreements at December 31,
1996.
The Company believes that continued expenditure of funds will be necessary
to support its anticipated growth. The Company believes 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.
-17-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Financial Statements and Supplementary Data appear at pages F-1 through F-
17 of this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
-18-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
(a) DIRECTORS. The information with respect to directors required by
this item is incorporated herein by reference from the section entitled
"Election of Directors" in the Company's definitive Proxy Statement for its
Annual Meeting of Stockholders to be held May 20, 1997 (the "1997 Proxy
Statement"), to be filed with the Commission not later than April 29, 1997.
(b) EXECUTIVE OFFICERS.
The executive officers of the Company, who are elected to serve at the
discretion of the Board of Directors, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ----- ---- --------
<S> <C> <C>
Lewis C. Paine, III 44 Chairman of the Board, President,
Chief Executive Officer and Director
Arthur J. McEvily, Ph.D. 44 Vice President Applications, Technical Service
and New Product Commercialization
Joel A. Stone 44 Vice President Operations and Manufacturing
Scott A. Kumf 40 Chief Financial Officer, Vice President
Administration and Treasurer
</TABLE>
Mr. Paine has served Opta as President and Director since May 1991, Chief
Executive Officer since December 1992, and Chairman of the Board since June
1993. He served as President of the Food Ingredients Division of Enzytech, Inc.
("Enzytech"), the Company's predecessor, from October 1990 to May 1991. Prior to
joining Enzytech, Mr. Paine was at Carnation Company and its parent company,
Nestle, S.A., from 1974 to 1990, where he most recently served as Vice President
of Marketing and New Business Development for the Refrigerated Products Division
from December 1987 to October 1990. From April 1986 to December 1987, he served
as an International Marketing Manager for Nestle, S.A. in Vevey, Switzerland.
Dr. McEvily was named Vice President Applications, Technical Service and
New Product Commercialization in October 1996. He served as Vice President Sales
and Business Development of the Company from December 1993 to September 1996.
From May 1991 to December 1993 he held various positions at Opta, ranging from
Senior Research Scientist to Product Director to Director of Business
Development. Dr. McEvily served in various scientific capacities at Enzytech
from October 1988 to May 1991. Dr. McEvily received a B.Sc. in Biochemistry from
Marlboro College, Marlboro, Vermont and a Ph.D. in chemistry from The University
of North Carolina at Chapel Hill. He was a postdoctoral fellow at Harvard
Medical School.
Mr. Stone has served as Vice President Operations and Manufacturing since
May 1991. He served as Senior Director of Manufacturing and Engineering
Management at Enzytech from April 1990 to May 1991. Prior to joining Enzytech,
Mr. Stone was Director of Manufacturing at Genencor, Inc. from August 1988 to
March 1990. From August 1986 to August 1988, Mr. Stone was Manager of Operations
at the Harbert Lummus Joint Venture.
Mr. Kumf joined Opta in August 1996 as Chief Financial Officer and Vice
President Administration. He was elected Treasurer and Assistant Secretary in
December 1996. Prior to joining Opta, Mr. Kumf served at BostonCoach, Inc. as
Chief Financial Officer from September 1995 to August 1996. From August 1994 to
May 1995, he was the Chief Financial Officer of Trotter, Inc. and from September
1990 to July 1994 he served as Chief Financial Officer for Polar Corp. Mr. Kumf
is a Certified Public Accountant in Massachusetts.
-19-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required under this item is incorporated herein by
reference from the section entitled "Executive Compensation" in the 1997 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this item is incorporated herein by reference
from the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this item is incorporated herein by reference
from the section entitled "Certain Transactions" in the 1997 Proxy Statement.
-20-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) Documents filed as part of this Report:
--------------------------------------
<TABLE>
<CAPTION>
<S> <C>
(1) Financial Statements:
---------------------
Report of Independent Accountants F-1
Balance Sheet at December 31, 1996 and 1995 F-2
Statement of Operations for the three years ended December 31, 1996 F-3
Statement of Stockholders' Equity for the three years ended December 31, 1996 F-4
Statement of Cash Flows for the three years ended December 31, 1996 F-5
Notes to Financial Statements F-6
(2) All financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or the notes thereto.
(3) Exhibits
--------
</TABLE>
Exhibit Number Description
- -------------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Company (Filed
as Exhibit 4.2 to the Company's Registration Statement on Form S-8,
Registration No. 33-93518, and incorporated herein by reference)
3.2 Restated By-Laws of the Company (Filed as Exhibit 3.4 to the Company's
Registration Statement on Form S-1, Registration No. 33-45700, as
amended, and incorporated herein by reference)
4.1 Article 4 of the Amended and Restated Certificate of Incorporation of
the Company (see Exhibit 3.1) (Filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8, Registration No. 33-93518, and
incorporated herein by reference)
4.2 Form of Common Stock Certificate of the Company (Filed as Exhibit 4.2 to
the Company's Registration Statement on Form S-1, Registration No. 33-
45700, as amended, and incorporated herein by reference)
4.3 Form of Warrant Certificate of the Company (Filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-3, Registration No. 33-80860,
and incorporated herein by reference)
10.1 Form of Unit Purchase Agreement dated as of April 21, 1994 between the
Company and the respective parties thereto (Filed as Exhibit 99.2 to
the Company's Form 8-K, Commission File No. 0-19811, and incorporated
herein by reference)
10.2 Amended and Restated Master Food Ingredients Collaborative Development
Agreement, dated August 11, 1994, between the Company and Pfizer Inc.
(Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, and incorporated herein by
reference)*
10.3 Master Food Ingredients License Agreement dated June 13, 1991 between
the Company and Pfizer Inc. (Filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1, Registration No. 33-45700, as
amended, and incorporated herein by reference)*
-21-
<PAGE>
10.4 Form of First Amendment to Master Food Ingredients License Agreement
(Filed as Exhibit 10.3 to the Company's Registration Statement on Form
S-1, Registration No. 33-45700, as amended, and incorporated herein by
reference)
10.5 Licensed Product Term Sheet dated March 2, 1994 between the Company and
Pfizer Inc. (Filed as Exhibit 10.5 to the Company's 1994 Annual Report
on Form 10-K, Commission File No. 0-19811, and incorporated herein by
reference). *
10.6 License and Technology Transfer Agreement effective as of May 1, 1991
between the Company and Enzytech, Inc. (Filed as Exhibit 10.6 to the
Company's Registration Statement on Form S-1, Registration No. 33-
45700, as amended, and incorporated herein by reference)
10.7 Promissory Note and Mortgage Agreement dated August 19, 1993 between the
Company and Springfield Institution for Savings (Filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, Commission File No. 0-19811, and incorporated
herein by reference)
10.8 Loan Agreement dated November 5, 1992 between the Company and
Massachusetts Business Development Corporation (Filed as Exhibit 10.12
to the Company's Annual Report on Form 10-K for the year ended December
31, 1992, Commission File No. 0-19811, and incorporated herein by
reference)
10.9 Mortgage and Security Agreement dated November 3, 1994 executed by the
Company in favor of the Massachusetts Business Development Corporation
(Filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, Commission File No. 0-19811, and
incorporated herein by reference)
10.10 Authorization and Loan Agreement dated May 18, 1992 among the Company,
Massachusetts Certified Development Corporation and U.S. Small Business
Administration (Filed as Exhibit 10.13 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992, Commission File No.
0-19811, and incorporated herein by reference)
10.11 Fixed Asset Line of Credit dated March 29, 1993 between the Company and
Silicon Valley Bank (Filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993,
Commission File No. 0-19811, and incorporated herein by reference)
10.12 Asset Purchase Agreement dated June 17, 1992, between Williamson Fiber
Products, Inc., The Williamson Group, Inc. and the Company (Filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 17,
1992, Commission File No. 0-19811, and incorporated herein by
reference)
10.13 Sublease and Consent dated June 17, 1992 among Williamson Fiber
Products, Inc., the Company and Spring Street Developers (Filed as
Exhibit 28.2 to the Company's Current Report on Form 8-K dated June 17,
1992, Commission File No. 0-19811, and incorporated herein by
reference)
10.14 Consulting Agreement, dated January 28, 1992, between the Company and
A.S. Clausi (Filed as Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, Commission File No. 0-
19811, and incorporated herein by reference)#
10.15 Stock Purchase and Repurchase Agreement, dated May 29, 1991, between
the Company and Akiva T. Gross (Filed as Exhibit 10.18 to the Company's
Registration Statement on Form S-1, Registration No. 33-45700, as
amended, and incorporated herein by reference)
10.16 Employment Agreement, dated May 1, 1991, between the Company and Akiva
T. Gross (Filed as Exhibit 10.21 to the Company's Registration
Statement on Form S-1, Registration No. 33-45700, as amended, and
incorporated herein by reference)#
-22-
<PAGE>
10.17 Letter agreement, dated May 1, 1995, between the Company and Akiva T.
Gross (Filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, Commission File No. 0-
19811, and incorporated herein by reference)#
10.18 Promissory Note dated August 12, 1994 executed by Akiva T. Gross in
favor of the Company (Filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994,
Commission File No. 0-19811, and incorporated herein by reference)
10.19 Pledge Agreement dated August 12, 1994 between Akiva T. Gross and the
Company (Filed as Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994, Commission File No.
0-19811, and incorporated herein by reference)
10.20 Extension and amendment of Employment Agreement, dated October 1, 1992
between the Company and Lewis C. Paine, III, dated December 31, 1993
(Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, Commission File No. 0-19811, and
incorporated herein by reference)#
10.21 Stock Purchase and Repurchase Agreement, dated May 29, 1991, between
the Company and Lewis C. Paine, III (Filed as Exhibit 10.17 to the
Company's Registration Statement on Form S-1, Registration No. 33-
45700, as amended, and incorporated herein by reference)
10.22 Amended and Restated Promissory Note dated as of September 19, 1990
executed by Lewis C. Paine, III in favor of the Company (Filed as
Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992, Commission File No. 0-19811, and incorporated
herein by reference)
10.23 Promissory Note dated January 8, 1993, executed by Lewis C. Paine, III
in favor of the Company (Filed as Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992, Commission
File No. 0-19811, and incorporated herein by reference)
10.24 Pledge Agreement dated January 8, 1993, between Lewis C. Paine, III and
the Company (Filed as Exhibit 10.28 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, Commission File No. 0-
19811, and incorporated herein by reference)
10.28 Employee Agreement for Protection of Company Property, dated May 1,
1991, in the form executed by Officers of the Company (Filed as Exhibit
10.23 to the Company's Registration Statement on Form S-1, Registration
No. 33-45700, as amended, and incorporated herein by reference)
10.29 1992 Employee, Director and Consultant Stock Option Plan, as amended
through March 10, 1993 (Filed as Exhibit 28.1 to the Company's
Registration Statement on Form S-8, Registration No. 33-65406, and
incorporated herein by reference)#
10.30 Amendment to 1992 Employee, Director and Consultant Stock Option Plan,
adopted January 19, 1995 (filed as Exhibit 10.30 to the Company's 1994
Annual Report on Form 10-K, Commission File No. 0-19811, and
incorporated herein by reference)#
10.31 Employee Stock Purchase Plan, as amended and restated (Filed as Exhibit
28.3 to the Company's Registration Statement on Form S-8, Registration
No. 33-48624, and incorporated herein by reference)#
10.32 Amendment to Employee Stock Purchase Plan, adopted February 16, 1993
(Filed as Exhibit 10.41 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992, Commission File No. 0-19811, and
incorporated herein by reference)#
-23-
<PAGE>
10.33 Press Release, dated June 4, 1996, announcing that the Company's
revenue and earnings for the second quarter and 1996 as a whole are
likely to be lower than Wall Street estimates. (Filed as Exhibit 99.1
to the Company's Current Report on Form 8-K dated June 4, 1996,
Commission File No. 0-19811, and incorporated herein by reference)
23 Consent of Price Waterhouse LLP (filed herewith)
* Confidential treatment has been granted by the Securities and Exchange
Commission.
# Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
OPTA FOOD INGREDIENTS, INC.
Date: March 21, 1997 By: /s/ Lewis C. Paine, III
------------------------------------
Lewis C. Paine, III
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ------ -----
<S> <C> <C>
/s/ Lewis C. Paine, III Chairman of the Board, March 21, 1997
- ------------------------------ President, Chief Executive
Lewis C. Paine, III Officer and Director
(principal executive officer)
/s/ Scott A. Kumf Chief Financial Officer, March 21, 1997
- ------------------------------ Vice President Administration
Scott A. Kumf and Treasurer (principal
financial and accounting
officer)
/s/ A.S. Clausi Director March 21, 1997
- ------------------------------
A.S. Clausi
/s/ Anthony B. Evnin Director March 21, 1997
- ------------------------------
Anthony B. Evnin
/s/ Harry Fields Director March 21, 1997
- ------------------------------
Harry Fields
/s/ Christopher F. O. Gabrieli Director March 21, 1997
- ------------------------------
Christopher F. O. Gabrieli
/s/ Glynn C. Morris Director March 21, 1997
- ------------------------------
Glynn C. Morris
/s/ Charles W. Newhall, III Director March 21, 1997
- ------------------------------
Charles W. Newhall, III
/s/ Frederic Stevenin Director March 21, 1997
- ------------------------------
Frederic Stevenin
</TABLE>
-25-
<PAGE>
OPTA FOOD INGREDIENTS,
INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE>
OPTA FOOD INGREDIENTS, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Financial Statements:
Report of Independent Accountants F-1
Balance Sheet at December 31, 1996 and 1995 F-2
Statement of Operations for the three years ended
December 31, 1996 F-3
Statement of Stockholders' Equity for the three years ended
December 31, 1996 F-4
Statement of Cash Flows for the three years ended
December 31, 1996 F-5
Notes to Financial Statements F-6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Opta Food Ingredients, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) and (2) on page 21 present fairly, in all material respects, the
financial position of Opta Food Ingredients, Inc. at December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 7, 1997
F-1
<PAGE>
OPTA FOOD INGREDIENTS, INC.
BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $37,605 $40,174
Short term investments 642 4,993
Accounts receivable, net 1,003 1,133
Inventories, net 3,490 2,234
Prepaid expenses and other current assets 136 314
------- -------
Total current assets 42,876 48,848
Fixed assets, net 11,914 11,137
Patents and trademarks, net 883 905
Restricted cash 125 200
Other assets 105 179
------- -------
$55,903 $61,269
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 1,492 $ 1,507
Accounts payable 758 763
Accrued expenses 867 882
------- -------
Total current liabilities 3,117 3,152
------- -------
Long term debt 4,117 5,498
------- -------
Deferred revenue and other liabilities 300 627
------- -------
Commitments (Note 16) - -
------- -------
Stockholders' equity:
Preferred stock, $.01 par value; 3,000,000
shares authorized, no shares issued or outstanding - -
Common stock, $.01 par value; 15,000,000
shares authorized, 10,965,681 and 10,745,532 shares issued
and outstanding at December 31, 1996 and 1995, respectively 110 107
Additional paid-in capital 78,989 78,088
Accumulated deficit (30,730) (26,203)
------- -------
48,369 51,992
------- -------
$55,903 $61,269
======= =======
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-2
<PAGE>
OPTA FOOD INGREDIENTS, INC.
STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Revenue:
Product sales $ 9,166 $ 6,799 $ 4,449
License and contract research fees 63 268 372
-------- -------- --------
9,229 7,067 4,821
-------- -------- --------
Cost and expenses:
Cost of revenue 7,409 6,340 4,209
Selling, general and administrative 3,868 2,725 2,397
Research and development 4,038 3,102 3,018
-------- -------- --------
15,315 12,167 9,624
-------- -------- --------
Loss from operations (6,086) (5,100) (4,803)
-------- -------- --------
Interest income 2,146 1,308 476
Interest expense (569) (400) (382)
Other income (expense), net (18) (5) 113
-------- -------- --------
Net loss $ (4,527) $ (4,197) $ (4,596)
======== ======== ========
Net loss per share $ (.42) $ (.48) $ (.75)
======== ======== ========
Weighted average shares outstanding 10,877 8,717 6,169
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-3
<PAGE>
OPTA FOOD INGREDIENTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
NUMBER OF PAR PAID-IN ACCUMULATED FOR STOCK STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT ISSUANCE EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,845,754 $ 48 $29,414 $(17,410) $ (18) $12,034
Sale of common stock in June 1994,
net of issuance costs 2,274,052 23 10,030 - - 10,053
Sale of common stock in August 1994,
net of issuance costs 250,000 3 1,418 - - 1,421
Sale of common stock pursuant to
exercise of stock options 3,691 - 1 - - 1
Sale of common stock under employee
stock purchase plan 9,255 - 38 - - 38
Net loss - - - (4,596) - (4,596)
---------- ----- ------- -------- ------ --------
Balance at December 31, 1994 7,382,752 74 40,901 (22,006) (18) 18,951
Sale of common stock pursuant to
public offering, net of offering
costs 2,300,000 23 32,023 - - 32,046
Sale of common stock pursuant to
exercise of stock warrants,
net of issuance costs 879,500 8 4,206 - - 4,214
Sale of common stock pursuant to
Pfizer stock rights 99,271 1 586 - - 587
Sale of common stock pursuant to
exercise of stock options 83,049 1 310 - - 311
Sale of common stock under employee
stock purchase plan 8,498 - 62 - - 62
Repurchase of founders stock (7,538) - - - - -
Forgiveness of notes receivable
for stock issuance - - - - 18 18
Net loss - - - (4,197) - (4,197)
---------- ----- ------- -------- ------ --------
Balance at December 31, 1995 10,745,532 107 78,088 (26,203) - 51,992
Sale of common stock pursuant to
exercise of stock options 135,145 2 423 - - 425
Sale of common stock pursuant to
exercise of stock warrants,
net of issuance costs 76,000 1 421 - - 422
Sale of common stock under employee
stock purchase plan 9,004 - 57 - - 57
Net loss - - - (4,527) - (4,527)
---------- ----- ------- -------- ------ --------
Balance at December 31, 1996 10,965,681 $ 110 $78,989 $(30,730) $ - $ 48,369
========== ===== ======= ======== ====== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
OPTA FOOD INGREDIENTS, INC.
STATEMENT OF CASH FLOWS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,527) $(4,197) $(4,596)
------- ------- -------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,206 798 742
Forgiveness of notes receivable 20 68 74
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable, net 130 (535) 61
Increase in inventories, net (1,256) (931) (670)
(Increase) decrease in prepaid
expenses and other current assets 178 (127) (92)
Increase (decrease) in accounts payable (5) 176 7
Increase (decrease) in accrued expenses (15) (109) 341
Increase (decrease) in deferred
revenue and other liabilities (327) (242) 366
------- ------- -------
Total adjustments (69) (902) 829
------- ------- -------
Net cash used in operating activities (4,596) (5,099) (3,767)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short term investments (5,970) (5,785) (3,305)
Maturity of short term investments 10,321 3,094 2,027
Purchase of fixed assets (1,783) (3,762) (443)
Increase in patents and trademarks (178) (211) (94)
Decrease in restricted cash 75 75 475
(Increase) decrease in other assets 54 (3) (116)
------- ------- -------
Net cash provided by (used in)
investing activities 2,519 (6,592) (1,456)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 904 37,220 11,513
Proceeds from issuance of long term debt 151 3,300 -
Principal payments on long term debt (1,547) (320) (412)
------- ------- -------
Net cash (used in) provided by
financing activities (492) 40,200 11,101
------- ------- -------
Net increase (decrease) in cash and
cash equivalents (2,569) 28,509 5,878
Cash and cash equivalents at
beginning of year 40,174 11,665 5,787
------- ------- -------
Cash and cash equivalents at end of year $37,605 $40,174 $11,665
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 551 $ 379 $ 365
======= ======= =======
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-5
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
Opta Food Ingredients, Inc. (the "Company") is a fully integrated developer,
manufacturer and marketer of proprietary food ingredients which it sells to
consumer food and food service companies. The Company was legally
incorporated on April 23, 1991.
The preparation of financial statements requires management to make
estimates and assumptions that affect the financial statements. Actual
results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue for product sales is recognized upon shipment. Revenue
from product licensing and contract research agreements is recognized as
earned pursuant to the related agreement terms. Advance payments received
under these agreements are recorded as deferred revenue.
CASH AND CASH EQUIVALENTS, SHORT TERM INVESTMENTS
AND CONCENTRATION OF CREDIT RISK
Cash and cash equivalents include investments with initial maturities of
three months or less. Short term investments, which are considered
available-for-sale and have contractual maturities within one year, are
recorded at fair value which approximates cost. The Company does not
believe that it is subject to any unusual credit risk beyond the normal
credit risk related to operating its business.
RESTRICTED CASH
Restricted cash represents a portion of a short term investment held at a
bank as collateral on the Company's debt agreement for greater than a one
year period (Note 9).
ACCOUNTS RECEIVABLE
Accounts receivable are reflected net of an allowance for doubtful accounts
of $107,000 and $57,000 at December 31, 1996 and 1995, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments at December 31,
1996 and 1995 approximates their fair value.
INVENTORIES
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 December 31, 1996.
FIXED ASSETS
Fixed assets are stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets, which range from five
to thirty-nine years. Maintenance and repair costs are expensed.
F-6
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
PATENTS AND TRADEMARKS
Patent and trademark costs are capitalized and amortized on a straight-line
basis over the shorter of the estimated economic lives or the stated terms
of the patent or trademark. Amortization periods are eight and ten years,
respectively.
STOCK COMPENSATION
The Company's stock option plans are accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". In 1996, the Company adopted only the footnote disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123", Note 12). Therefore,
the adoption of this standard has no effect on the Company's results of
operations or financial position.
NET LOSS PER SHARE
Net loss per share is determined by dividing the net loss by the weighted
average number of common shares outstanding during the year. All common
stock equivalents have been excluded from the calculation of weighted
average shares outstanding as their inclusion would be anti-dilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1995, and 1994
financial statements to conform to current presentation. These
reclassifications have no effect on the Company's results of operations or
financial position.
3. CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
Following is a summary of the fair market value of available-for-sale
securities by balance sheet classification (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
CASH EQUIVALENTS:
Commercial paper $ 3,720 $30,283
U.S. government obligations 8,936 4,780
Money market funds 24,641 1,639
------- -------
$37,297 $36,702
======= =======
SHORT TERM INVESTMENTS:
U.S. government obligations $ 395 $ 4,793
Certificates of deposit - 200
Commercial paper 247 -
------- -------
$ 642 $ 4,993
======= =======
</TABLE>
F-7
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
At December 31, 1996 and 1995, short term investments are carried at fair
market value which approximates amortized cost. Gross unrealized gains and
losses at December 31, 1996 and 1995 and realized gains and losses on sales
of securities for the years then ended were not significant.
4. NOTES RECEIVABLE
At December 31, 1996 and 1995, notes receivable from officers and an
employee are included in other assets. The terms of the notes forgive the
principal and related interest ratably over a five year period as long as
the officers and employee remain employed by the Company or if terminated
without cause. Balances of these notes are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Unsecured note bearing interest at 8% $ 60 $ -
Non-interest bearing notes receivable, secured by the
Company's common stock owned by officers 40 140
---- ----
$100 $140
==== ====
</TABLE>
5. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Raw materials $ 339 $ 314
Finished goods 3,151 1,920
------ ------
$3,490 $2,234
====== ======
</TABLE>
F-8
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. FIXED ASSETS
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Land, building and improvements $ 5,783 $ 5,234
Plant equipment 7,808 6,762
Lab equipment 553 440
Office furniture and equipment 506 431
------- -------
14,650 12,867
Accumulated depreciation (2,736) (1,730)
------- -------
$11,914 $11,137
======= =======
</TABLE>
7. PATENTS AND TRADEMARKS
Patents and trademarks consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Patents and trademarks $1,698 $1,520
Accumulated amortization (815) (615)
------ ------
$ 883 $ 905
====== ======
</TABLE>
8. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Payroll costs $ 253 $ 210
Professional fees 164 128
Other 450 544
----- -----
$ 867 $ 882
===== =====
</TABLE>
F-9
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
9. BORROWINGS
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Mortgage payable to a bank due in monthly
installments of $20 including interest at 8 1/2%
with the remaining balance of $2,194 due
August 1, 1998, with the option to renew for an
additional five years at the bank's prime rate plus
2 1/2%, secured by the Company's corporate
headquarters. $2,275 $2,369
Note payable to a bank due in quarterly installments
of $275 plus interest at prime plus 1% (9.25%
at December 31, 1996) due January 1, 1999, secured
by certain fixed assets. 2,200 3,300
Note payable to a bank due in monthly installments
of $17 plus interest at 9% due November 1998,
secured by certain fixed assets. 383 600
Note payable to a state government agency and
guaranteed by the U.S. Small Business
Administration due in monthly installments of
$6 including interest at 5.554% due
July 2003, secured by certain fixed assets and
a $200 U.S. government security. 368 414
Note payable to a state government agency due in
monthly installments of $6 plus interest at prime
plus 2 1/2% (10.75% at December 31, 1996)
due June 2000, secured by certain fixed assets and a
second mortgage on the Company's corporate
headquarters. 251 322
Note payable to a state government agency due in
monthly installments of $3 including interest at 3%
due July 2001, secured by certain fixed assets. 132 -
------ ------
5,609 7,005
Current portion (1,492) (1,507)
------ ------
$4,117 $5,498
====== ======
</TABLE>
F-10
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Maturities of long term debt for each of the years ended December 31 are as
follows (in thousands):
<TABLE>
<S> <C>
1997 $1,492
1998 3,665
1999 156
2000 125
2001 74
Thereafter 97
------
$5,609
======
</TABLE>
The Company's debt agreements contain certain financial covenants and
restrict the Company's ability to participate in merger discussions, to pay
dividends, to make capital expenditures over a certain limit, to invest in
certain types of securities and to obtain additional debt financing without
the approval of the bank. At December 31, 1996, the Company was in
compliance with the terms of these agreements.
10. Income Taxes
Deferred tax benefits consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Federal $ 1,563 $ 978 $ 1,564
State 411 820 412
------- ------- -------
1,974 1,798 1,976
Increase in valuation allowance (1,974) (1,798) (1,976)
------- ------- -------
$ - $ - $ -
======= ======= =======
</TABLE>
Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Net operating loss carryforwards $ 9,789 $ 7,760
Deferred revenue 50 190
Research and development credit 778 653
Other state tax credits 53 72
Expense accruals and other 368 389
-------- -------
Gross deferred tax assets 11,038 9,064
Valuation allowance (11,038) (9,064)
-------- -------
$ - $ -
======== =======
</TABLE>
F-11
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has provided a valuation allowance for the full amount of the
deferred tax assets since realization of these future benefits is not
sufficiently assured. As the Company achieves profitability, these deferred
tax assets may be available to offset future income tax liabilities and
expense.
A reconciliation between the amount of reported tax expense and the amount
computed using the U.S. federal statutory rate of 35% follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Income tax (benefit) at statutory rate $(1,584) $(1,469) $(1,608)
State taxes, net (247) (163) (106)
Stock option exercises (135) (179) (7)
Research and development credits (114) (64) (161)
Other state credits 29 34 (140)
Other 77 43 46
------- ------- -------
(1,974) (1,798) (1,976)
Increase in valuation allowance 1,974 1,798 1,976
------- ------- -------
$ - $ - $ -
======= ======= =======
</TABLE>
At December 31, 1996, the Company had federal net operating loss
carryforwards and research and development credits which may be used to
offset future federal taxable income and tax liabilities as follows (in
thousands):
<TABLE>
<CAPTION>
RESEARCH
NET AND
YEAR OF OPERATING DEVELOPMENT
EXPIRATION LOSS CREDIT
<S> <C> <C>
2006 $ 1,219 $ 76
2007 4,247 128
2008 5,570 144
2009 3,720 112
2010 4,991 70
2011 4,604 74
------- ----
$24,351 $604
======= ====
</TABLE>
A portion of the net operating loss carryforwards and valuation allowances
totaling $1,850,000 and $744,000, respectively, relates to deductions for
non-qualified stock option exercises and incentive stock option
disqualifying dispositions. This amount will be credited to additional
paid-in capital upon realization.
F-12
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Ownership changes, as defined in the Internal Revenue Code, resulting from
the Company's initial public offering in March 1992 and a second offering
in August 1995, have limited the amount of net operating loss and tax
credit carryforwards that can be utilized annually to offset future taxable
income or tax liabilities. As a result, the amount of these net operating
loss carryforwards which can be utilized annually is $3,000,000 for losses
incurred prior to March 1992 and $9,077,000 for losses incurred prior to
August 1995. Subsequent changes in ownership could further affect the
limitation in future years.
11. STOCKHOLDERS' EQUITY
PREFERRED STOCK
Shares of preferred stock may be issued at the discretion of the Board of
Directors of the Company with such designations, rights and preferences as
the Board may determine from time to time.
COMMON STOCK
In June 1994, the Company completed the sale and issuance of 2,274,052
units in a private placement to institutional investors resulting in net
proceeds of $10,053,000. Each unit consists of one share of the Company's
common stock and one-half of one common stock purchase warrant. Each full
warrant may be exercised over a three year period beginning in June 1994
for one share of common stock at a per share price of $5 during year one,
$6 during year two and $7 during year three. The aggregate fair value of
the common stock purchase warrants of $1,592,000 has been recorded as
additional paid-in capital. During 1996 and 1995, 76,000 and 879,500 shares
of common stock were issued pursuant to exercises of such warrants
resulting in net proceeds of $422,000 and $4,214,000, respectively. At
December 31, 1996, the Company has reserved 181,526 shares of common stock
for the exercise of the remaining warrants.
In August 1994, the Company completed the sale and issuance of 250,000
shares of common stock to Pfizer resulting in net proceeds of $1,421,000.
Pfizer was granted the right to purchase additional shares to maintain
their percentage equity holdings of the Company's common stock over a three
year period beginning in July 1994. During 1995, 99,271 shares of the
Company's common stock were issued to Pfizer resulting in net proceeds of
$587,000. In December 1996, Pfizer sold the majority of their equity
holdings in the Company to an unrelated third party which did not assume
Pfizer's percentage maintenance rights.
In May 1995, the stockholders approved an increase in the number of
authorized common shares from 10,000,000 to 15,000,000.
In September 1995, the Company completed the sale and issuance of 2,300,000
shares of common stock at $15 per share in a public offering resulting in
net proceeds of $32,046,000.
F-13
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. STOCK OPTION AND STOCK PURCHASE PLANS
During 1992 and 1991, the Company established the 1992 Employee, Director
and Consultant Stock Option Plan and the 1991 Non-Employee Stock Option
Plan, respectively. These plans provide for the issuance of non-qualified
or incentive stock options to key employees, directors and consultants of
the Company. The Board of Directors determines the term, price, number of
shares and the vesting period of each option grant. However, the price may
be no less than the par value of the common shares for non-qualified
options, and no less than the fair market value of the shares on the date
granted for incentive stock options (or no less than 110% of the fair
market value in the case of holders of more than 10% of the voting stock of
the Company). Additionally, the term of incentive stock options cannot
exceed ten years (five years for options granted to holders of more than
10% of the voting stock of the Company).
In May 1996, the stockholders approved an increase in the number of common
shares authorized for issuance under the 1992 Employee, Director, and
Consultant Stock Option Plan from 1,416,667 to 1,666,667. The number of
common shares authorized for issuance under the 1991 Non-Employee Stock
Option Plan is 101,244.
The Company has reserved 1,374,821 shares of common stock for issuance
under the 1992 Employee, Director and Consultant Stock Option Plan and
11,504 shares for issuance under the 1991 Non-Employee Stock Option Plan at
December 31, 1996.
At December 31, 1996, options to purchase 1,106,839 shares were outstanding
under the plans, of which 452,038 were exercisable. There were 279,486
shares available for future grant under the plans at December 31, 1996.
F-14
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Stock option plan transactions were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Options outstanding at December 31, 1993 773,132 $ 5.06
Granted 206,500 5.62
Exercised (3,691) 0.32
Cancelled (94,250) 7.98
---------
Options outstanding at December 31, 1994 881,691 4.90
Granted 181,553 8.59
Exercised (83,049) 3.75
Cancelled (45,808) 6.88
---------
Options outstanding at December 31, 1995 934,387 5.62
---------
Granted 562,353 10.53
Exercised (135,145) 3.14
Cancelled (254,756) 9.25
---------
Options outstanding at December 31, 1996 1,106,839 $ 7.58
=========
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ---------------------------
RANGE OF NUMBER OF WEIGHTED AVERAGE WEIGHTED NUMBER OF WEIGHTED
EXERCISE OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$ .06 - $ .45 79,068 5.44 $ 0.19 76,568 $ 0.19
4.63 - 6.62 487,929 8.62 5.82 307,921 5.87
7.00 - 11.56 499,292 9.96 9.97 60,099 9.31
12.25 - 16.50 40,550 10.00 13.93 7,450 13.99
--------- -------
1,106,839 452,038
========= =======
</TABLE>
In 1992, the stockholders approved the Employee Stock Purchase Plan. This
plan enables eligible employees to purchase common shares at 85% of the fair
market value of the shares during two six month periods beginning January 1
and July 1 of each year. The Company has authorized 200,000 shares of the
Company's common stock for issuance under this plan. At December 31, 1996,
163,067 shares remain available for issuance under this plan.
F-15
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has adopted the disclosure only provisions of FAS 123.
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the Company's stock option plans been
determined based on fair value at the grant dates for awards in 1996 and
1995 as prescribed in FAS 123, the Company's net loss and net loss per share
would have been as follows (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
<S> <C> <C>
NET LOSS:
As reported $(4,527) $(4,197)
Pro forma (5,582) (4,410)
NET LOSS PER SHARE:
As reported $ (.42) $ (.48)
Pro forma (.51) (.51)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
dividend yield of 0%, risk-free interest rate of 6.5%, expected volatility
of 68.67%, and an option term of 8 years. The weighted average fair value of
options granted during the years ended December 31, 1996 and 1995 was $7.96
and $6.17, respectively.
13. RETIREMENT SAVINGS PLAN
The Company has a 401(k) Plan which is available to employees of the Company
who meet certain eligibility requirements. This plan is qualified under
Section 401(k) of the Internal Revenue Code and is subject to contribution
limitations as set annually by the Internal Revenue Service. Eligible
employees may enroll January 1 and July 1 of each year. The Company does not
make matching contributions.
14. RELATED PARTY TRANSACTIONS
In 1991, the Company licensed to Pfizer the exclusive worldwide right to
manufacture and market EverFresh for use in seafood processing and the
exclusive rights outside of the U.S. to manufacture and market certain Opta
Oat Fibers and OptaGrade products in exchange for license fees and royalty
payments. The Company provided applications development and marketing
support for certain products for additional cash payments from Pfizer
through June 1996. In January 1997, all agreements with Pfizer were
terminated except for the EverFresh license agreement which was assigned to
an unrelated third party. Revenue recognized under these agreements in 1996,
1995, and 1994 was $509,000, $234,000, and $792,000, respectively.
F-16
<PAGE>
15. CUSTOMER CONCENTRATION, SALES TO MAJOR CUSTOMERS AND EXPORT SALES
The Company has focused its sales efforts in baked goods and dairy. During
1996 and 1995, a significant portion, but not a majority, of product sales
were to a group of independent bakeries who supply a quick service
restaurant chain.
There were no major individual customers during the years ended December 31,
1996 and 1995. During the year ended December 31, 1994, the Company had
sales to four customers which approximated 16%, 11%, 11% and 10% of revenue.
Export sales were 11% (3% to Europe and 8% to the Middle East); 18% (10% to
Europe and 8% to the Middle East); and 26% (16% to Europe and 10% to the
Middle East) for the years ended December 31, 1996, 1995 and 1994,
respectively.
16. COMMITMENTS
LEASES
The Company leases certain equipment and facilities under noncancellable
operating leases. Total future minimum payments under these leases are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C>
1997 $ 155
1998 153
1999 144
2000 144
2001 136
Thereafter 624
------
$1,356
======
</TABLE>
Rent expense for the years ended December 31, 1996, 1995, and 1994 was
$141,000, $167,000 and $136,000, respectively.
F-17
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-48624 and No. 33-65406) of Opta Food Ingredients,
Inc. of our report dated February 7, 1997 appearing on page F-1 of this Annual
Report on Form 10-K.
Price Waterhouse LLP
Boston, Massachusetts
March 20, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 37,605,000
<SECURITIES> 642,000
<RECEIVABLES> 1,003,000
<ALLOWANCES> 0
<INVENTORY> 3,490,000
<CURRENT-ASSETS> 42,876,000
<PP&E> 14,650,000
<DEPRECIATION> 2,736,000
<TOTAL-ASSETS> 55,903,000
<CURRENT-LIABILITIES> 3,117,000
<BONDS> 0
0
0
<COMMON> 110,000
<OTHER-SE> 48,259,000
<TOTAL-LIABILITY-AND-EQUITY> 55,903,000
<SALES> 9,166,000
<TOTAL-REVENUES> 9,229,000
<CGS> 7,409,000
<TOTAL-COSTS> 7,409,000
<OTHER-EXPENSES> 7,906,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 569,000
<INCOME-PRETAX> (4,527,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,527,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,527,000)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> 0
</TABLE>
