<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE
ACT OF 1934
Commission File Number 001-15617
---------
SPIGADORO, INC.
---------------
(exact name of registrant as specified in its charter)
Delaware 13-3920210
- -------- ----------
(State or other jurisdiction of (I.R.S Employer
Incorporation or organization) Identification No.)
70 East 55th Street
24th Floor
New York, New York 10022
------------------------
(212) 754 - 4271
----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at May 15, 2000
- ---------------------------- ---------------------------
Common Stock, $.01 par value 60,977,148 shares
<PAGE>
SPIGADORO, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED MARCH 31, 2000
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2000
(unaudited) and December 31, 1999 3
Consolidated Statements of Income for Three
Months ended March 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for Three
Months ended March 31, 2000 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Default upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15 - 16
Item 6. Exhibits and Reports on Form 8-K 16 - 17
SIGNATURE PAGE 18
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, March 31, December, 31
2000 2000 1999
---- ---- ----
(unaudited) (unaudited)
(thousands (millions of Lire)
of Dollars)(1)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 22,818 45,978 15,999
Accounts receivable trade, net of allowance
for doubtful accounts of Lire 1,926 millions
in 2000 and Lire 1,857 millions in 1999 27,223 54,855 50,937
Securities held for sale 5,794
Taxes receivable 6,782 13,666 13,895
Inventories 9,965 20,080 21,789
Deferred income taxes 290 585 6,080
Other current assets 2,148 4,327 2,397
---------- ------- -------
Total current assets 69,226 139,491 116,891
Property, equipment and improvements, net 34,698 69,916 70,584
Other assets:
Intangible assets, at amortized cost 9,348 18,836 19,205
Other assets 3,351 6,753 6,728
Assets held for disposition 1,877 3,782 3,837
---------- ------- -------
$ 118,500 238,778 217,245
========== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 38,206 76,985 72,395
Current portion of long-term debt 1,794 3,615 3,589
Accounts payable 15,477 31,187 32,429
Income taxes payable 868 1,748 886
Accrued payroll and social contributions 2,431 4,899 5,949
Other current liabilities 2,439 4,914 5,039
---------- ------- -------
Total current liabilities 61,215 123,348 120,287
Long-term debt, less current portion 6,455 13,006 13,479
Employees and agents termination indemnities 7,553 15,220 15,328
Deferred income taxes 2,540 5,120 4,963
Social contributions and income taxes payable 2,373 4,781 4,781
---------- ------- -------
Total liabilities 80,136 161,475 158,838
---------- ------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01(Lire 19.27) par value,
authorized 10,000,000, none issued
Common stock, $.01(Lire 19.27) par value,
authorized 100,000,000, issued 60,443,814
in 2000 and 60,942,099 in 1999 578 1,164 1,174
Capital in excess of par value 28,184 56,791 56,781
Retained earnings 10,568 21,294 754
Accumulated other comprehensive income (769) (1,549) 95
Less treasury stock (50,000 shares) (197) (397) (397)
---------- ------- -------
Total stockholders' equity 38,364 77,303 58,407
---------- ------- -------
$ 118,500 238,778 217,245
========== ======= =======
</TABLE>
(1) Exchange rate: Lire 2,015 = U.S. $1 as of March 31, 2000, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
3
<PAGE>
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
<TABLE>
<CAPTION>
2000 2000 1999
---- ---- ----
(thousands of (millions of
Dollars, except Lire, except
per share per share
amounts)(1) amounts)
<S> <C> <C> <C>
Net sales $ 31,467 63,406 65,355
Cost of sales 23,282 46,914 47,069
----------- ------ ------
Gross profit 8,185 16,492 18,286
----------- ------ ------
Operating expenses:
Selling expenses 6,067 12,225 12,707
General and administrative expenses 2,060 4,151 3,305
----------- ------ ------
8,127 16,376 16,012
----------- ------ ------
Income from operations 58 116 2,274
----------- ------ ------
Other income (expense):
Interest expense (617) (1,244) (743)
Interest income 95 192
Other, net 13,950 28,109 185
----------- ------ ------
13,428 27,057 (558)
----------- ------ ------
Income from continuing operations
before income taxes 13,486 27,173 1,716
Income taxes (3,266) (6,581) (1,268)
----------- ------ ------
Income from continuing operations 10,220 20,592 448
Loss from discontinued operations (26) (52) --
----------- ------ ------
Net income $ 10,194 20,540 448
=========== ========== ======
Earnings per share of common stock:
Basic $ 0.17 341 8
----------- ------ ------
Diluted 0.16 317 8
----------- ------ ------
Weighted average number of
common shares outstanding
- basic 60,393,814 60,393,814 57,696,281
========== ========== ==========
- diluted 65,047,882 65,047,882 57,758,175
========== ========== ==========
</TABLE>
(1) Exchange rate: Lire 2,015 = U.S. $1 as of March 31, 2000, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
4
<PAGE>
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
<TABLE>
<CAPTION>
2000 2000 1999
---- ---- ----
(thousands (millions of Lire)
of Dollars)(1)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income from continuing operations $ 10,220 20,592 448
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Gain on sale of securities (13,752) (27,710) --
Depreciation of equipment 730 1,470 1,063
Amortization of goodwill 224 452 332
Provision for employees and agents
termination indemnities 271 546 512
Provision for doubtful accounts 52 104 714
Deferred income taxes 2,994 6,034 (185)
Other non cash items, net (159) (322) --
Payment of employees and agents
termination indemnities (325) (654) (631)
Changes in operating assets and liabilities:
Accounts receivable trade (1,996) (4,022) 109
Inventories 848 1,709 1,074
Accounts payable and other current liabilities (558) (1,125) (2,553)
Accrued payroll and social contributions (521) (1,050) (1,373)
Other, net (730) (1,472) 1,185
----------- ------- ------
Net cash (used in) provided by operating activities (2,702) (5,448) 695
----------- ------- ------
Cash flows from investing activities:
Proceeds from sale of securities 16,363 32,972 --
Purchases of property, equipment and improvements (404) (815) (283)
Proceeds from disposal of property, equipment
and improvements 6 13 47
Additions to intangible assets (41) (83) (423)
----------- ------- ------
Net cash provided by (used in) investing activities 15,924 32,087 (659)
----------- ------- ------
Cash flows from financing activities:
Repayment of notes payable (1,460) (2,941) --
Proceeds from long term debt 199 400 (535)
Payment of long-term debt (420) (847) (164)
Net change in short-term borrowings 3,064 6,174 2,944
----------- ------- ------
Net cash provided by financing activities 1,383 2,786 2,245
----------- ------- ------
Effect of exchange rate on cash 273 554 --
----------- ------- ------
Net increase in cash and cash equivalents 14,878 29,979 2,281
Cash and cash equivalents, beginning of the period 7,940 15,999 869
----------- ------- ------
Cash and cash equivalents, end of period $ 22,818 45,978 3,150
=========== ======= ======
Supplemental disclosure of cash flow information, cash paid during
the period for:
Interest $ 536 1,079 701
=========== ======= ======
</TABLE>
(1) Exchange rate: Lire 2,015 = U.S. $1 as of March 31, 2000, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
5
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION - The unaudited interim consolidated
financial statements contain all adjustments consisting of normal recurring
adjustments, which are, in the opinion of the management of Spigadoro, Inc.
("Spigadoro"), necessary to present fairly the consolidated financial position
of Spigadoro as of March 31, 2000, and the consolidated results of operations
and cash flows of Spigadoro for the periods presented. Results of operations
for the periods presented are not necessarily indicative of the results for the
full fiscal year. These financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in
Spigadoro's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1999.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Spigadoro, its wholly-owned subsidiaries Petrini S.p.A.
("Petrini") and its wholly-owned subsidiary Petrini Foods International Inc.
("PFI"), IAT AG, Switzerland ("IAT AG"), IAT Multimedia GmbH with its branch
office Columbus-Computer-Handel und Vertrieb ("IAT GmbH") and
Columbus-Computer-Handels und Vertriebs Verwaltungs GmbH (collectively, the
"Company"). All intercompany accounts and transactions have been eliminated.
As a result of the Petrini transaction, the Company issued a
controlling amount of its common stock to the stockholders of Petrini and the
transaction has been accounted for as a reverse acquisition. In a reverse
acquisition, although the Company was the legal acquiror, Petrini is considered
the acquiror for accounting purposes. Therefore, the financial statements for
all periods presented prior to the December 29, 1999 acquisition date are the
financial statements of Petrini. For all periods subsequent to December 29,
1999, the financial statements are the financial statements of Petrini and
Spigadoro. As a result of the Company's change in business strategy prior to the
Petrini transaction, it discontinued, for accounting purposes, all of its
operations related to the distribution of personal computers and personal
computer components, peripherals and software.
FOREIGN CURRENCY TRANSLATION - The consolidated financial statements
of the Company have been prepared in Italian Lire, the Company's functional
currency, since principally all of the continuing operations are headquartered
in Italy. Subsidiaries located in the United States, Switzerland and Germany
have been converted to Lire from U.S. Dollars, Swiss Francs and Deutsche Marks
using the exchange rate at the end of the period for balance sheet items and the
average exchange rates for the period for statement of income items and for
statement of cash flow items. The translation differences are recorded as
accumulated other comprehensive income in the consolidated statements of
stockholders' equity.
The consolidated financial statements of the Company, including U.S.
Dollar information in the notes to the consolidated financial statements, have
been translated into U.S. Dollars for the convenience of the readers and have
been made at the rate of Italian Lire 2,015 to U.S. $1.00, approximating the
Noon Buying rate of the Federal Reserve Bank of New York at March 31, 2000. All
monetary amounts are in million of Lire and thousands of U.S. Dollars excluding
per share information. Such translation should not be construed as a
representation that the Lire amounts could be converted into U.S. Dollars at
that, or any other rate.
6
<PAGE>
INCOME TAXES - The Company complies with Statement of Financial
Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes", which
requires an asset and liability approach to financial reporting for income
taxes. Deferred income tax assets and liabilities are computed based on
differences between the financial reporting and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the period in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce the deferred income tax assets to the
amount expected to be realized.
INCOME PER SHARE -The Company complies with Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings Per Share". SFAS 128 requires
dual presentation of basic and diluted earnings per share for all periods
presented. Basic earnings per share is computed by dividing income of the entity
by the weighted average number of common shares outstanding for the period.
Basic earnings per share excludes shares held in treasury and shares held in
escrow pending release upon the occurrence of specified economic events. Shares
held in treasury and in escrow for the periods ended March 31, 2000 and 1999
were 50,000 and Nil, and 50,000 and 498,285 respectively. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. The effect of the discontinued operations on earnings per share were
immaterial and eliminated due to rounding. At March 31, 2000, the Company had
unexercised stock options to purchase 1,450,000, shares, and had unexercised
common stock purchase warrants to purchase 2,771,726 shares.
NOTE 2. SALE OF EQUITY INTEREST IN SUBSIDIARY
Under a stock purchase agreement dated January 19, 2000, the Company
sold its 100% ownership of the General Partner of FSE Computer Handel GmbH & Co
KG ("FSE") and its 80% ownership of the limited partnership interest of FSE for
approximately Lire 0.4 billion ($200,000) payable over a five year period. FSE
marketed the Company's high performance personal computers in Germany. The sale
did not result in a gain or loss during first quarter 2000. The assets were
stated at their net realizable value in the balance sheet at December 31, 1999.
See "Item 5. Other Information."
NOTE 3. ALGO VISION SHARES
In a series of transactions commencing in February 2000, the Company
sold all of its 750,000 shares of Algo Vision plc for approximately Lire 33.9
billion ($16.8 million), resulting in a realized one-time net gain of Lire 27.7
billion ($13.8 million) during the first quarter 2000.
NOTE 4. ESCROW SHARES
In connection with the Company's initial public offering in March 1997,
certain of the Company's stockholders placed an aggregate of 498,285 shares of
the Company's common stock into escrow. The Company did not meet the thresholds
established by the escrow arrangement and, as a result, the escrow shares were
canceled and contributed to the Company's capital effective as of March 31,
2000.
7
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NOTE 5. INVENTORIES
March 31, March 31, December 31,
2000 2000 1999
------------- -------------------------
(thousands of (millions of Lire)
Dollars)
Raw materials and consumables 6,505 13,107 15,074
Work-in-process 116 234 349
Finished goods 3,344 6,739 6,366
----------- ----------- -----------
9,965 20,080 21,789
=========== =========== ===========
NOTE 6. COMPREHENSIVE INCOME
Three Months Ended
March 31,
-------------------------------------------
2000 2000 1999
------------- ------------ --------------
(thousands of (millions of Lire)
Dollars)
Net income 10,194 20,540 448
Other comprehensive income
(loss) net of tax:
Foreign currency translation
adjustments (816) (1,644) 51
--------------------------- --------------
9,378 18,896 499
============= ============ ==============
NOTE 7. SUBSEQUENT EVENTS
In April 2000, Petrini entered into a standby credit facility with ten
Italian banks in the amount of Lire 60 billion (approximately $30 million). The
term of the facility is 18 months and outstanding balances will bear interest at
0.75% above EURIBOR. The facility will be used by the Company for working
capital purposes, including acquisitions. See "Item 5. Other Information."
On May 3, 2000, under a Shares Purchase Agreement with Starfood Italia
S.r.l. and Dino Gazzola, the Company acquired, through its wholly-owned
subsidiary, Petrini, all of the issued and outstanding shares of Pastificio
Gazzola S.p.A. Under the terms of the transaction, the Company paid
approximately Lire 23.2 billion (approximately $11.5 million) in cash and issued
583,334 shares of its common stock to Starfood Italia. In addition, the Company
has agreed to make additional contingent payments on May 3, 2002 of up to Lire
10 billion (approximately $5.0 million) subject to certain conditions. The
Company has also guaranteed the obligations of Petrini with respect to the
additional contingent payments and has agreed to issue additional shares of its
common stock to satisfy such obligations if required. See "Item 5. Other
Information."
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Unless the context otherwise requires, "we" or "us" refers to
Spigadoro, Inc., the Delaware corporation, and its wholly owned subsidiaries.
This Form 10-Q contains forward-looking statements within the meaning
of the "safe harbor" provision under Section 21E of the Securities Exchange Act
of 1934 and the Private Securities Litigation Reform Act of 1995. We use
forward-looking statements in our description of our plans and objectives for
future operations and assumptions underlying these plans and objectives.
Forward-looking terminology includes the words "may", "expects", "believes",
"anticipates", "intends", "projects", or similar terms, variations of such terms
or the negative of such terms. These forward-looking statements are based on
management's current expectations and are subject to factors and uncertainties
which could cause actual results to differ materially from those described in
such forward-looking statements. We expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained in this Form 10-Q to reflect any change in our expectations
or any changes in events, conditions or circumstances on which any
forward-looking statement is based. Factors which could cause such results to
differ materially from those described in the forward-looking statements include
those set forth under "Risk Factors" and elsewhere in, or incorporated by
reference from time to time into our filings with the Securities and Exchange
Commission. These factors include the following: we have changed our principal
business and we may not be successful operating a new business; Vertical
Financial Holdings and affiliated entities control Spigadoro; our operating
results will be adversely affected by charges from acquisitions; our strategy of
acquiring other companies for growth may not succeed and may adversely affect
our financial condition, results of operations and cash flows; intense
competition in the pasta and animal feed industries may adversely affect
operating results; our business may be adversely affected by risks associated
with foreign operations; and other risks. In addition, our acquisition
negotiations are in various stages and we have no agreement or arrangements
relating to any acquisitions. We are unable to predict whether or when any of
these negotiations will result in any definitive agreements.
OVERVIEW
We were formed in September 1996 as a holding company and, prior to
December 1999, marketed, principally in Germany, high performance personal
computers, computer hardware and software, components and peripherals.
In December 1999, we acquired all of the outstanding shares of common
stock of Petrini from Gruppo Spigadoro, N.V. As a result of the transaction, we
changed our name from IAT Multimedia, Inc. to Spigadoro, Inc. and changed the
focus of our business from the sale of computers and computer components and
peripherals to the production and sale of food products, including pasta and
flour products and animal feed. Our pasta and flour business produces
traditional, specialty and diet pastas, as well as flours for use in the bakery
industry. Our animal feed business produces feed for industrial breeders, family
owned breeding farms and domestic pets. We also engage, to a lesser extent, in
animal breeding, selling gardening articles and supplying accessories for pets.
9
<PAGE>
We continue to distribute personal computer components, peripherals and
software, as well as personal computers, in Germany through our subsidiary
Columbus Computer Handel and its affiliates. We intend to sell Columbus and have
commenced discussions relating to the sale of Columbus, but no agreement has
been reached with any party regarding the terms of a potential transaction and
we cannot predict whether we will be able to sell this business on terms
favorable to us or at all. Columbus has been classified as a discontinued
operation and, as a result, its results of operations are not included in our
results of operations, except as set forth in our statements of income under
discontinued operations.
Since all of our continuing operations are primarily in Italy, our
functional currency is the Italian Lire. Therefore, our financial statements are
presented in Lire for financial statement reporting. All amounts stated in U.S.
Dollars have been translated into U.S. Dollars for the convenience of the reader
at the rate of Lire 2,015 = US $1.00, which approximates the Noon Buying Rate of
the Federal Reserve Bank of New York on March 31, 2000. In addition, all amounts
in tons are stated in European tons.
In the following discussions, most percentages and Lire and U.S. Dollar
amounts have been rounded to aid presentation. As a result, all such figures are
approximations.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2000 COMPARED TO THREE MONTH PERIOD
ENDED MARCH 31, 1999.
NET SALES. Net sales for the first quarter 2000 decreased by 3.0% to
Lire 63.4 billion ($31.5 million) from Lire 65.4 billion ($32.4 million) for the
first quarter 1999. Sales volumes remained flat, with a 5.3% increase in food
division volumes being offset by a 1% decrease in animal feed volumes. The
decrease in net sales was therefore primarily due to a 2.9% decrease in sales
prices to our customers primarily caused by an increase in sales of lower priced
products resulting from high competition in the markets in which we operate.
Net sales for animal feed for the first quarter 2000 decreased by 3.8% to Lire
46.1 billion ($22.9 million) from Lire 47.9 billion ($23.8 million) for the
first quarter 1999, while the sales volume decreased slightly by 1.0% to 96,787
tons in the first quarter 2000 from 97,805 tons in the first quarter 1999. Net
sales for pasta and flour for the first quarter 2000 decreased by 0.8% to Lire
17.3 billion ($8.6 million) from Lire 17.4 billion ($8.7 million) for the first
quarter 1999 despite an increase of 5.3% in sales volumes to 18,000 tons in the
first quarter 2000 from 17,100 tons in the first quarter 1999 resulting from new
marketing campaigns. Our sales are primarily made to customers within Europe.
GROSS PROFIT. Gross profit for the first quarter 2000 decreased by 9.8%
to Lire 16.5 billion ($8.2 million) from Lire 18.3 billion ($9.1 million) for
the first quarter 1999. The decrease in gross profit resulted in a decrease in
the gross margin percentage to 26.0% in first quarter 2000 from 28.0% in first
quarter 1999. This decrease was primarily due to an increase in raw material
costs impacted by a strengthening of the U.S. Dollar against the Lire, our
inability to increase sales prices due to high competition and an increase in
sales of lower priced products.
OPERATING EXPENSES. Operating expenses relating to the Petrini
operations (stand-alone) in the first quarter 2000 decreased by 5.6% to Lire
15.1 billion ($7.5 million) from Lire 16.0 billion ($7.9 million) in the first
quarter 1999 primarily due to an efficiency plan introduced in the second half
of 1999 and due to a decrease of certain costs which were attributable to lower
net sales. Consolidated operating expenses, including selling expenses and
10
<PAGE>
general and administrative expenses, for the first quarter 2000 increased by
2.3% to Lire 16.4 billion ($8.1 million), or 25.8% of net sales, from Lire 16.0
billion ($7.9 million) for the first quarter 1999, or 24.5% of net sales. This
increase was due to Spigadoro corporate overhead costs, including goodwill
amortization, which were not incurred in the first quarter 1999 and increased
operating expenses at PFI, Petrini's U.S. subsidiary, due to additional
investments in PFI in order to launch our recent penetration into the U.S. food
service market. Such expenses were lower in the first quarter 1999 when PFI
distributed its products primarily to supermarkets.
INCOME FROM OPERATIONS. Income from operations at Petrini (stand-alone)
decreased by 19.1% to Lire 1.8 billion ($916,000) during the first quarter 2000
as compared to Lire 2.3 billion ($1.1 million) during the comparable 1999
period. This decrease was primarily due to a reduction in gross profit in the
first quarter 2000 as a result of lower net sales and an increase in sales of
lower priced products, partially offset by a decrease in Petrini (stand-alone)
operating expenses. Consolidated income from operations for the first quarter
2000 decreased by 94.9% to Lire 0.1 billion ($58,000) from Lire 2.3 billion
($1.1 million) for the first quarter 1999 due to the additional effect of an
increase in operating expenses as a result of corporate overhead and goodwill
amortization expenses not incurred in the first quarter 1999, as well as higher
operating expenses incurred by PFI in the first quarter 2000 due to the new
initiatives described above.
INTEREST EXPENSE. Interest expense for the first quarter 2000 increased
by 67.4% to Lire 1.2 billion ($617,000) from Lire 0.7 billion ($369,000) for the
first quarter 1999. This increase was a result of interest expense relating to
notes payable issued in the Petrini acquisition in December 1999, partially
offset by a reduction in our lending margins and a reduction in interest rates
in Italy.
OTHER INCOME. Other income for the first quarter 2000 increased to Lire
28.1 billion ($14.0 million) from Lire 0.2 billion ($92,000) for the first
quarter 1999 primarily as a result of the sale of all of our Algo Vision shares
resulting in a one-time net gain of Lire 27.7 billion ($13.8 million).
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES. Income before taxes for
the first quarter 2000 increased to Lire 27.2 billion ($13.5 million) from Lire
1.7 billion ($852,000) for the first quarter 1999. This increase was due to a
one-time gain from the sale of all of our Algo Vision shares, partially offset
by a reduction of gross profit in the first quarter 2000 and other factors set
forth above.
NET INCOME. Net income for the first quarter 2000 increased to Lire
20.5 billion ($10.2 million) from Lire 0.4 billion ($222,000) for the first
quarter 1999. The increase in net income was primarily due to a one-time gain
from the sale of all of our Algo Vision shares, partially offset by a reduction
in gross profits, an increase in interest expense, corporate overhead and
goodwill amortization and an increase in income taxes. Income taxes for the
first quarter 2000 increased to Lire 6.6 billion ($3.3 million) from Lire 1.3
billion ($629,000) for the first quarter 1999. However, a substantial portion of
this tax amount is a non-cash charge relating to the reversal of a deferred tax
asset. We will not be required to pay a substantial portion of the income taxes
due on the sale of the Algo Vision shares as a result of the past net operating
losses from our operations in Switzerland. The change in relative income tax
rates for the first quarter 2000 as compared to the first quarter 1999 was
primarily a result of the fact that our income for the first quarter 1999 was
derived from operations in Italy while our income for the first quarter 2000 was
derived primarily from a one-time gain
11
<PAGE>
from the sale of all of our Algo Vision shares which was taxed at the tax rate
in Switzerland which is substantially lower than the tax rate applied in Italy.
EBITDA. EBITDA relating to the Petrini operations (stand-alone) in the
first quarter 2000 decreased by 13.9% to Lire 3.2 billion ($1.6 million) from
Lire 3.7 billion ($1.8 million) in the first quarter 1999. This decrease was
primarily due to a reduction in gross profit in the first quarter 2000 as a
result of a decrease in net sales and an increase in sales of lower priced
products, partially offset by a decrease in Petrini (stand-alone) operating
expenses. Consolidated EBITDA for the first quarter 2000 decreased by 44.5% to
Lire 2.0 billion ($1.0 million) from Lire 3.7 billion ($1.8 million) for the
first quarter 1999 due to the additional effect of corporate overhead expenses
not incurred in the first quarter 1999 and higher operating expenses incurred by
PFI in the first quarter 2000 due to the investment in our food service
initiative. EBITDA should not be considered an alternative to income from
operations, net income, cash flow or any other measure of performance as
determined in accordance with generally accepted accounting principles, as an
indicator of operating performance or as a measure of liquidity.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, our cash and cash equivalents increased to Lire
46.0 billion ($22.8 million) from to Lire 16.0 billion ($7.9 million) at
December 31, 1999.
Net cash used in operating activities was Lire 5.4 billion ($2.7
million) during the first quarter 2000 compared to net cash provided by
operating activities of Lire 0.7 billion ($345,000) during the first quarter
1999. This increase in cash used in operating activities was primarily the
result of an increase in accounts receivable in the amount of Lire 4.0 billion
($2.0 million) and an increase in cash used to repay other current liabilities.
Net cash provided by investing activities amounted to Lire 32.1 billion
($15.9 million) for the first quarter 2000 compared to net cash used in
investing activities of Lire 0.7 billion ($327,000) for the first quarter 1999.
Cash provided by investing activities was the result of a one-time gain from our
sale of all of our Algo Vision shares in the first quarter 2000 resulting in net
proceeds of Lire 33.0 billion ($16.4 million).
Net cash provided by financing activities in the first quarter 2000
totaled Lire 2.8 billion ($1.4 million) and in the first quarter 1999 totaled
Lire 2.2 billion ($1.1 million). Cash provided by financing activities was
primarily the result of an increase from December 31, 1999 in short term
borrowings of our Petrini operation partially offset by a repayment of notes
payable in the amount of Lire 2.9 billion ($1.5 million) issued in our
acquisition of Petrini in December 1999.
At March 31, 2000, our total indebtedness increased to Lire 93.6
billion ($46.5 million) compared to Lire 89.5 billion ($44.4 million) at
December 31, 1999 primarily due to an increase in short term borrowings related
to Petrini's operations.
At March 31, 2000, we had short term debt in the aggregate amount of
Lire 77.0 billion ($38.2 million) comprised of borrowings under short term
credit facilities and indebtedness assumed in the acquisition of Petrini. We
maintain unsecured short term credit facilities with over 20 Italian banks.
These facilities are typically available for terms up to one year and accrue
interest at rates that fluctuate relative to the official Italian rate of
discount. At March 31, 2000, the aggregate amount outstanding under these
facilities was Lire 42.2 billion
12
<PAGE>
($20.9 million) and Lire 40.5 billion ($20.0 million) was unused and available
for borrowing. Borrowings under these facilities are used to support Petrini's
operations and are serviced by cash flow from operations. At March 31, 2000, the
aggregate amount outstanding under the promissory notes issued in the
acquisition of Petrini was Lire 34.8 billion ($17.3 million). All of this debt
is payable in 2000.
At March 31, 2000, we had long term debt in the aggregate amount of
Lire 16.6 billion ($8.2 million). The debt matures over varying terms ranging
from June 2000 to March 2007 and accrues interest either at fixed annual
interest rates ranging from 3.4% to 12.2% or variable rates based upon various
interest rates measures. Substantially all of the long term debt is secured by
liens on Petrini's property. A portion of the long term debt is subsidized by
government agencies.
In June 1999, we entered into a factoring arrangement whereby we sell a
portion of our accounts receivable without recourse. A portion of the proceeds
of this arrangement have been used to pay short-term and long-term indebtedness
while the remaining proceeds have been used for working capital. We intend to
expand our factoring activity in the future and believe that it will result in
increased cash and decreased short-term debt, while increasing our flexibility
to incur additional indebtedness if necessary or advisable to execute our
consolidation strategy.
In April 2000, we repaid the Lire 12.05 billion promissory note issued
to Carlo Petrini in our acquisition of Petrini in December 1999. The promissory
note was interest free and due on June 30, 2000. The aggregate amount paid, less
a discount for early payment, was $5.9 million.
In a series of transactions commencing in February 2000, we sold all of
our 750,000 shares of Algo Vision plc for Lire 33.9 billion ($16.8 million) of
gross proceeds.
In April 2000, Petrini entered into a standby credit facility with 10
Italian banks in the amount of Lire 60 billion ($30 million). The term of the
facility is 18 months and outstanding balances will bear interest at 0.75% above
EURIBOR. The facility will be used by us for working capital purposes, including
acquisitions.
In May 2000, under a Shares Purchase Agreement with Starfood Italia
S.r.l. and Dino Gazzola, we acquired, through our wholly-owned subsidiary,
Petrini, S.p.A., all of the issued and outstanding shares of Pastificio Gazzola
S.p.A. Under the terms of the transaction, we paid Lire 23.2 billion ($11.5
million) in cash and issued 583,334 shares of our common stock to Starfood
Italia. In addition we have agreed to make additional contingent payments on May
3, 2002 of up to Lire 10 billion ($5.0 million) subject to certain conditions.
We have also guaranteed the obligations of Petrini with respect to the
additional contingent payments and have agreed to issue additional shares of our
common stock to satisfy such obligations if required. The transaction was
financed from borrowings under Petrini's standby credit facility.
We believe that our funds, including cash generated from operations
together with amounts available under our credit facilities and factoring
arrangements, should be sufficient to finance our working capital requirements
and our capital and debt service requirements for approximately the 12 month
period following March 31, 2000, depending on acquisitions. We may require
additional funds for acquisitions and integration and management of acquired
businesses. However, we have no commitments or arrangements to obtain any
additional funds and we cannot predict whether additional
13
<PAGE>
funds will be available on terms favorable to us or at all. If we cannot obtain
funds when required, the growth of our business may be adversely affected. Our
acquisition negotiations are in various stages and we have no agreements or
arrangements relating to any acquisitions. We are unable to predict whether or
when any of these negotiations will result in any definitive agreements.
ESCROW SHARES
In connection with our initial public offering in March 1997, certain
of our stockholders placed an aggregate of 498,285 shares of our common stock
into escrow. We did not meet the thresholds established by the escrow
arrangement and, as a result, the escrow shares were canceled and contributed to
our capital effective as of March 31, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
We did not issue any equity securities during the three months ended
March 31, 2000, which were not registered under the Securities Act of 1933,
except as follows:
In February 2000, we granted options to purchase an aggregate of
500,000 shares of our common stock under our 1999 Stock Option Plan to our
employees, exercisable at $2.875 per share, the fair market value of our common
stock on the date of grant. All of these options were immediately exercisable.
In addition, in May 2000, we issued 583,334 shares of our common stock
to Starfood Italia S.r.l. in connection with our acquisition of the capital
stock of Pastificio Gazzola S.p.A.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
of 1933 under Section 4(2) or Regulation D of the Securities Act. The sale of
such securities was without the use of an underwriter, and the certificates for
the shares contain a restrictive legend permitting the transfer of such
securities only upon registration of the shares or an exemption under the
Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
SALE OF EQUITY INTEREST IN SUBSIDIARY - In January 2000, we sold our
80% equity interest in FSE Computer-Handel GmbH & Co. KG and our 100% equity
interest in FSE Computer Handel-Verwaltung GmbH to Frank Strauss (the founder of
FSE) and certain other parties, some of whom are employees or former employees
of FSE (collectively, the "Purchasers"). In addition, Dr. Alfred Simmet, the
former Chief Operating Officer of FSE, sold his 20% equity interest in FSE
Computer-Handel GmbH & Co. KG to the Purchasers. FSE was responsible for the
marketing of our high performance personal computers in Germany. Under the terms
of the transaction, the Purchasers assumed all of the outstanding third party
liabilities of FSE (aggregating approximately $1.4 million) and agreed to pay us
up to an aggregate of approximately $263,000 based upon the cash flow of FSE (as
defined in the purchase agreement) over the next several years. Of the purchase
price, up to approximately $53,000 was attributable to Dr. Simmet's ownership
and under the terms of the transaction, Dr. Simmet transferred his right to
receive the approximately $53,000 to us to satisfy a portion of Dr. Simmet's
obligations to us. The purchase price will be paid as follows:
15
<PAGE>
o 5% of the "cash flow" of FSE for the fiscal year ending
December 31, 2000;
o 15% of the "cash flow" of FSE for the fiscal year ending
December 31, 2001; and
o 25% of the "cash flow" of FSE for the fiscal year ending
December 31, 2002 through 2004.
ALGO VISION SHARES - In a series of transactions commencing in February
2000, we sold all of our 750,000 shares of Algo Vision plc for approximately
Lire 33.9 billion (approximately $16.8 million) resulting in a realized one-time
gain of Lire 27.7 billion ($13.8 million) during the first quarter 2000.
GAZZOLA TRANSACTION - On May 3, 2000, under a Shares Purchase Agreement
with Starfood Italia S.r.l. and Dino Gazzola, we acquired, through our
wholly-owned subsidiary, Petrini, all of the issued and outstanding shares of
Pastificio Gazzola S.p.A. Pastificio Gazzola is an Italian company that produces
and sells private label pasta in Europe, and in particular, Italy, France and
Germany. Pastificio Gazzola owns approximately 99.8% of the capital stock of
Gazzola France, a French company that sells private label pasta in France. Under
the terms of the transaction, we paid approximately Lire 23.2 billion
(approximately $11.5 million) in cash and issued 583,334 shares of our common
stock to Starfood Italia. In addition we have agreed to make additional
contingent payments on May 3, 2002 of (i) up to 5 billion Lire (approximately
$2.5 million) in the event Pastificio Gazzola achieves certain performance
targets in 2000 and 2001 and (ii) 5 billion Lire (approximately $2.5 million) if
Mr. Gazzola does not voluntarily resign as the Managing Director of Pastificio
Gazzola prior to May 3, 2002. We have also guaranteed the obligations of Petrini
with respect to the additional contingent payments and have agreed to issue
additional shares of our common stock to satisfy such obligations if required.
The transaction was financed from borrowings under Petrini's credit facility.
Starfood Italia is controlled by Mr. Gazzola. Pastificio Gazzola will
operate as a wholly-owned subsidiary of Petrini (and as indirect wholly-owned
subsidiary of Spigadoro) and Mr. Gazzola has agreed to remain as the Managing
Director of Pastificio Gazzola until May 3, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.2 Shares Purchase Agreement dated as of April 14, 2000 by and between
Petrini S.p.A. and the other parties named therein.(3)
10.72 Employment Agreement dated January 1, 2000 by and between the Company
and Lucio De Luca.(1)
10.78 Stock Purchase Agreement dated as of January 19, 2000 by and between
the Company and the other parties named therein.(2)
27 Financial Data Schedule
- -------------
16
<PAGE>
(1) Incorporated by reference to the Registrant's Current Report on Form
8-K as filed on January 12, 2000
(2) Incorporated by reference to the Registrant's Current Report on Form
8-K as filed on February 2, 2000
(3) Incorporated by reference to the Registrant's Current Report on Form
8-K as filed on May 10, 2000
(b) Reports on Form 8-K.
We filed reports on Form 8-K on January 12, 2000 reporting information
under Items 1, 2 and 7 (including financial statements and pro forma financial
statements), on January 19, 2000 reporting information under Item 4, on January
19, 2000 reporting information under Item 5, on February 2, 2000 reporting
information under Items 2 and 7 (including pro forma financial statements), on
February 29, 2000 reporting information under Item 2, on April 26, reporting
information under Item 5 and on May 10, 2000 reporting information under Item 2.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPIGADORO, INC.
By: /s/ Jacob Agam
---------------
Jacob Agam
Chairman of the Board of
Directors and Chief Executive
Officer
/s/ Klaus Grissemann
--------------------
Klaus Grissemann
Chief Financial Officer
Date: May 15, 2000
18
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