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 June 30, 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 August 14, 2000
- ---------------------------- ------------------------------
Common Stock, $.01 par value 60,930,148 shares
SPIGADORO, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED JUNE 30, 2000
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000
(unaudited) and December 31, 1999 3
Consolidated Statements of Income for Three Months
ended June 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Income for Six Months
ended June 30, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows for Six Months
ended June 30, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Default upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20-21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE PAGE 23
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, June 30, December, 31
2000 2000 1999
(unaudited) (unaudited)
-------------- ------------------------
ASSETS (thousands (millions of Lire)
of Dollars)(1)
Current assets:
Cash and cash equivalents $ 20,013 40,707 15,999
Accounts receivable trade, net of allowance
for doubtful accounts of Lire 2,474 millions
in 2000 and Lire 1,857 millions in 1999 23,904 48,622 50,937
Securities held for sale 5,794
Taxes receivable 7,102 14,445 13,895
Inventories 16,390 33,337 21,789
Deferred income taxes 306 622 6,080
Other current assets 6,460 13,140 2,397
--------- ---------- ---------
Total current assets 74,175 150,873 116,891
Property, equipment and improvements, net 70,691 143,785 70,584
Other assets:
Intangible assets, at amortized cost 18,435 37,497 19,205
Other assets 4,281 8,707 6,728
Assets held for disposition 1,793 3,647 3,837
--------- ---------- ---------
$ 169,375 344,509 217,245
========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 34,187 69,536 72,395
Current portion of long-term debt 3,374 6,862 3,589
Accounts payable 36,710 74,668 32,429
Income taxes payable 1,413 2,874 886
Accrued payroll and social contributions 3,256 6,623 5,949
Other current liabilities 3,981 8,097 5,039
--------- ---------- ---------
Total current liabilities 82,921 168,660 120,287
Long-term debt, less current portion 34,440 70,051 13,479
Employees and agents termination indemnities 9,329 18,975 15,328
Deferred income taxes 2,884 5,866 4,963
Social contributions and income taxes payable 2,350 4,781 4,781
--------- ---------- ---------
Total liabilities 131,924 268,333 158,838
--------- ---------- ---------
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 63,152,148
in 2000 and 60,942,099 in 1999 598 1,217 1,174
Capital in excess of par value 29,645 60,298 56,781
Retained earnings 8,278 16,838 754
Accumulated other comprehensive income (loss) (806) (1,641) 95
Less treasury stock (80,000 shares) (264) (536) (397)
--------- ---------- ---------
Total stockholders' equity 37,451 76,176 58,407
--------- ---------- ---------
$ 169,375 344,509 217,245
========= ========== =========
(1) Exchange rate: Lire 2,034 = U.S. $1 as of June 30, 2000, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
3
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
June 30,
-----------------------------------------------
2000 2000 1999
------------------- ---------- ---------
(thousands of (millions of Lire, except
Dollars, except per per share amounts)
share amounts)(1)
Net sales $ 39,566 80,478 65,963
Cost of sales 31,995 65,078 47,165
-------- -------- --------
Gross profit 7,571 15,400 18,798
-------- -------- --------
Operating expenses:
Selling expenses 6,209 12,630 10,573
General and administrative expenses 2,863 5,823 5,200
-------- -------- --------
9,072 18,453 15,773
-------- -------- --------
Income (loss) from operations (1,501) (3,053) 3,025
-------- -------- --------
Other income (expense):
Interest expense (1,121) (2,280) (516)
Interest income 207 421 --
Other, net 496 1,008 (529)
-------- -------- --------
(418) (851) (1,045)
-------- -------- --------
Income (loss) from continuing operations
before income taxes (1,919) (3,904) 1,980
Income taxes (204) (414) (1,413)
-------- -------- --------
Income (loss) from continuing operations (2,123) (4,318) 567
Loss from discontinued operations (68) (138) --
-------- -------- --------
Net income (loss) $ (2,191) (4,456) 567
======== ======== ========
Earnings per share of common stock:
Basic $ (0.04) (73) 10
======== ======== ========
Diluted $ (0.04) (73) 10
======== ======== ========
Weighted average number of
common shares outstanding
- basic 60,733,239 60,733,239 57,682,551
========== ========== ==========
- diluted 60,733,239 60,733,239 57,793,715
========== ========== ==========
(1) Exchange rate: Lire 2,034 = U.S. $1 as of June 30, 2000, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
4
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
June 30,
----------------------------------------------
2000 2000 1999
------------------- -------- ---------
(thousands of (millions of Lire, except
Dollars, except per per share amounts)
share amounts)(1)
Net sales $ 70,739 143,884 131,318
Cost of sales 55,060 111,992 94,234
---------- ----------- --------
Gross profit 15,679 31,892 37,084
---------- ----------- --------
Operating expenses:
Selling expenses 12,220 24,855 23,280
General and administrative expenses 4,903 9,974 8,505
---------- ----------- --------
17,123 34,829 31,785
---------- ----------- --------
Income (loss) from operations (1,444) (2,937) 5,299
---------- ----------- --------
Other income (expense):
Interest expense (1,732) (3,524) (1,259)
Interest income 301 613 --
Other, net 14,315 29,117 (344)
---------- ----------- --------
12,884 26,206 (1,603)
---------- ----------- --------
Income from continuing operations
before income taxes 11,440 23,269 3,696
Income taxes (3,439) (6,995) (2,681)
---------- ----------- --------
Income from continuing operations 8,001 16,274 1,015
Loss from discontinued operations (93) (190) --
---------- ----------- --------
Net income $ 7,908 16,084 1,015
========== =========== ========
Earnings per share of common stock:
Basic $ 0.13 266 18
========== =========== ==========
Diluted $ 0.12 254 18
========== =========== ==========
Weighted average number of
common shares outstanding
- basic 60,561,456 60,561,456 57,689,379
========== =========== ==========
- diluted 65,604,223 65,604,223 57,816,332
========== =========== ==========
(1) Exchange rate: Lire 2,034 = U.S. $1 as of June 30, 2000, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
5
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
--------------------------------------------
2000 2000 1999
-------------- -------- ----------
(thousands (millions of Lire)
of Dollars)(1)
Cash flows from operating activities:
Net income from continuing operations $ 8,001 16,274 1,015
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of securities (13,804) (28,078) --
Depreciation of equipment 2,039 4,148 2,098
Amortization of goodwill 563 1,144 669
Provision for employees and agents
termination indemnities 577 1,174 1,098
Provision for doubtful accounts 157 320 1,153
Deferred income taxes 2,931 5,962 (348)
Other non cash items, net 130 264 --
Payment of employees and agents
termination indemnities (426) (866) (1,909)
Changes in operating assets and liabilities:
Accounts receivable trade 7,575 15,408 22,745
Inventories 1,444 2,936 3,838
Accounts payable and other current liabilities 4,000 8,137 (3,828)
Accrued payroll and social contributions (598) (1,217) (608)
Other, net (1,444) (2,937) (7,570)
-------- ----------- --------
Net cash provided by operating activities 11,145 22,669 18,353
-------- ----------- --------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (12,202) (24,819) --
Proceeds from sale of securities 16,426 33,411 --
Purchases of property, equipment and improvements (1,589) (3,232) (840)
Proceeds from disposal of property, equipment
and improvements 30 62 284
Additions to intangible assets (149) (303) (558)
-------- ----------- --------
Net cash (used in) provided by investing activities 2,516 5,119 (1,114)
-------- ----------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,735 3,528 --
Purchase of treasury stock (72) (146) --
Repayment of notes payable (7,517) (15,290) --
Proceeds from long term debt 15,055 30,621 9,972
Payment of long-term debt (1,343) (2,732) (6,608)
Net change in short-term borrowings (9,727) (19,784) (6,195)
-------- ----------- --------
Net cash used in financing activities (1,869) (3,803) (2,831)
-------- ----------- --------
Effect of exchange rate on cash 355 723 --
-------- ----------- --------
Net increase in cash and cash equivalents 12,147 24,708 14,408
Cash and cash equivalents, beginning of the period 7,866 15,999 869
-------- ----------- --------
Cash and cash equivalents, end of period $ 20,013 40,707 15,277
======== =========== ========
Supplemental disclosure of cash flow information,
cash paid during the period for:
Interest $ 1,456 2,961 1,733
======== =========== ========
Income taxes $ 0 0 2,687
======== =========== ========
(1) Exchange rate: Lire 2,034 = U.S. $1 as of June 30, 2000, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
6
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 June 30, 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 subsidiaries Petrini Foods International Inc.
("PFI") and Pastificio Gazzola S.p.A. ("Gazzola"), 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 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, except
for equity accounts which are translated at historical rates 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 2,034 to U.S. $1.00, approximating the
Noon Buying rate of the Federal Reserve Bank of New York at June 30, 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
7
representation that the Lire amounts could be converted into U.S. Dollars at
that, or any other rate.
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 June 30, 2000 and 1999 were
80,000 and 2,125,000 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 June 30, 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 the six months ended June 30, 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 28.1
billion ($13.8 million).
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.
NOTE 5. ACQUISITION OF GAZZOLA
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. The aggregate purchase price, including acquisition expenses, was
Lire 27.4 billion ($13.5 million) in cash. In addition, the
8
Company issued 583,334 shares of its common stock to Starfood Italia and
received $1,750,000 of cash proceeds. The Company has also 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 issued 2,125,000 shares of its common stock which were put into
escrow to satisfy such obligations if required. See "Item 5. Other Information."
The acquisition was accounted for as a purchase and the purchase price
was allocated on the basis of the relative fair values of the assets acquired
and the liabilities assumed as follows:
Millions
of Lire
---------
Purchase price 27,367
Gazzola net equity April 30, 2000 307
---------
Excess cost 27,060
---------
Fixed and intangible assets 10,950
Goodwill 18,400
Allowance for doubtful accounts (1,502)
Deferred tax liability (788)
---------
27,060
---------
The following unaudited pro forma condensed statements of operations
for the six months ended June 30, 2000 and 1999 give effect to the acquisition
of Gazzola as if it had occurred on January 1 of each year:
Six Months Ended June 30,
2000 1999
---------------------------------- ----------------------------------
(thousands (millions (thousands (millions
of Dollars) Of Lire) of Dollars) of Lire)
( e x c e p t p e r s h a r e a m o u n t s )
Net sales 82,555 167,917 87,817 178,620
=============== ================= ================ ===============
Loss before extraordinary items (8,190) (16,659) (364) (741)
=============== ================= ================ ===============
Net income (loss) 5,329 10,840 (364) (741)
=============== ================= ================ ===============
Earnings per share
- - Basic 0.09 179 (0.01) (13)
=============== ================= ================ ===============
- - Diluted 0.09 174 (0.01) (13)
=============== ================= ================ ===============
Weighted average number
of shares outstanding
- - Basic 60,561,456 57,689,379
========== ==========
- - Diluted 65,604,223 57,689,379
========== ==========
9
NOTE 6. INVENTORIES
June 30, June 30, December 31,
2000 2000 1999
---------------------- ------------------- ---------------------
(thousands of (millions of Lire)
Dollars)
Raw materials and consumables 8,665 17,625 15,074
Work-in-process 97 197 349
Finished goods 7,628 15,515 6,366
---------------------- ------------------- ---------------------
16,390 33,337 21,789
====================== =================== =====================
NOTE 7. COMPREHENSIVE INCOME (LOSS)
Six Months Three Months
Ended Ended
June 30, June 30,
-------------------------------------------- ---------------------------------------
2000 2000 1999 2000 2000 1999
------------------ ------------ ----------- --------------- ------------ ---------
(thousands of (millions of Lire) (thousands of (millions of Lire)
Dollars) Dollars)
Net income (loss) 7,908 16,084 1,015 (2,191) (4,456) 567
Other comprehensive income
(loss) net of tax:
Foreign currency
translation adjustments (854) (1,736) 42 (45) (92) (9)
------------------ ------------ ----------- --------------- ------------ ---------
7,054 14,348 1,057 (2,236) (4,548) 558
================== ============ =========== =============== ============ =========
10
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 currently
anticipated or expressed or implied by any 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.
11
In May 2000, we acquired, through our wholly-owned subsidiary, Petrini,
all of the issued and outstanding shares of Pastificio Gazzola S.p.A.
("Gazzola"). Gazzola is an Italian company that produces and sells private label
pasta in Europe and, in particular, Italy, France and Germany. Gazzola owns
approximately 99.8% of the capital stock of Gazzola France, a French company
that sells private label pasta in France. See "Item 5. Other Information."
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 2,034 = US $1.00, which approximates the Noon Buying Rate of
the Federal Reserve Bank of New York on June 30, 2000. In addition, all amounts
in tons are stated in metric 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 JUNE 30, 2000 COMPARED TO THREE MONTH PERIOD
ENDED JUNE 30, 1999.
We acquired Gazzola on May 3, 2000 and therefore our results of
operations for the second quarter 2000 include the Gazzola operations, while our
results of operations for the second quarter 1999 include only the operations of
Petrini. As a result, all revenue and expense accounts in the following
discussion for the second quarter 2000 were increased by Gazzola's revenues and
expenses incurred during the two months May and June 2000.
NET SALES. Net sales for the second quarter 2000 increased by 22.0% to
Lire 80.5 billion ($39.6 million) from Lire 66.0 billion ($32.4 million) for the
second quarter 1999 primarily due to the Gazzola sales for May and June 2000
which were not included in the prior year period. Net sales for animal feed for
the second quarter 2000 decreased slightly by 0.8% to Lire 47.6 billion ($23.4
million) from Lire 48.0 billion ($23.6 million) for the second quarter 1999,
while the sales volume decreased by 1.4% to 95,900 tons in the second quarter
2000 from 97,300 tons in the second quarter 1999. Net sales for pasta and flour
for the second quarter 2000 increased by 82.8% to Lire 32.9 billion ($16.2
million) from Lire 18.0 billion ($8.8 million) for the second quarter 1999 as a
result of an increase of 97.7% in sales volumes to 34,000 tons in the second
quarter 2000 from 17,200 tons in the second quarter 1999 due to Gazzola's sales
in May and June 2000. The increase in net sales was therefore primarily due
12
to increased volumes in the food division, partially offset by a decrease in
sales prices to our customers primarily caused by an increase of lower priced
products of our Gazzola operation and resulting from high competition in the
markets in which we operate. Our sales are primarily made to customers within
Europe.
GROSS PROFIT. Gross profit for the second quarter 2000 decreased by
18.1% to Lire 15.4 billion ($7.6 million), or 19.1% of net sales, from Lire 18.8
billion ($9.2 million), or 28.5% of net sales, for the second 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 sufficiently
increase sales prices due to high competition, an increase in sales of lower
priced products and an increase in lower margin private label sales from our
Gazzola operation. We anticipate a decrease in raw material prices resulting
from a strong wheat crop which, together with certain sales price increases,
should contribute to an improvement of our profit margins during the second half
of 2000.
OPERATING EXPENSES. Operating expenses relating to the Petrini and
Gazzola operations (stand-alone) in the second quarter 2000 increased by 8.8% to
Lire 17.2 billion ($8.4 million) or 21.3% of net sales from Lire 15.8 billion
($7.8 million) or 23.9% of net sales in the second quarter 1999 due to Gazzola
operating expenses for May and June 2000 which were not included in the prior
year period. The increase associated with the inclusion of the Gazzola operating
expenses was partially offset by the Petrini efficiency plan introduced in the
second half of 1999, which resulted in a reduction of the Petrini operating
expenses of Lire 1.6 billion ($803,000), or 10.4%, in the second quarter 2000
(including reductions due to lower sales volumes) compared to the second quarter
1999. Consolidated operating expenses, including selling expenses and general
and administrative expenses, for the second quarter 2000 increased by 17.0% to
Lire 18.5 billion ($9.1 million), or 22.9% of net sales, from Lire 15.8 billion
($7.8 million) for the second quarter 1999, or 23.9% of net sales. This increase
was due to the additional effect of Spigadoro corporate overhead costs,
including goodwill amortization, which were not incurred in the second 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 second quarter 1999
when PFI distributed its products primarily to supermarkets.
INCOME (LOSS) FROM OPERATIONS. Loss from operations at Petrini and
Gazzola (stand-alone) amounted to Lire 1.3 billion ($638,000) during the second
quarter 2000 as compared to income from operations of Lire 3.0 billion ($1.5
million) during the comparable 1999 period. This decrease was primarily due to a
reduction in gross profit in the second quarter 2000 resulting from the factors
set forth above and an increase in operating expenses due to the Gazzola
acquisition. Consolidated loss from operations for the second quarter 2000
amounted to Lire 3.1 billion ($1.5 million) compared to income from operations
of Lire 3.0 billion ($1.5 million) for the second 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 second quarter
1999, as well as higher operating expenses incurred by PFI in the second quarter
2000 due to the new initiatives described above.
INTEREST EXPENSE. Interest expense for the second quarter 2000
increased to Lire 2.3 billion ($1.1 million) from Lire 0.5 billion ($254,000)
for the second quarter 1999. This increase was a result of additional debt
incurred and assumed in connection with our acquisition of Gazzola, interest
expense relating to notes payable issued in the Petrini
13
acquisition in December 1999 and additional costs incurred relating to our
increased factoring activity.
OTHER INCOME. Other income for the second quarter 2000 increased to
Lire 1.0 billion ($496,000) from other expense of Lire 0.5 billion ($260,000)
for the second quarter 1999 primarily as a result of exchange rate gains on the
repayment of our Lire 12.05 billion promissory note issued in connection with
our acquisition of Petrini in December 1999.
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES. Loss before
taxes for the second quarter 2000 amounted to Lire 3.9 billion ($1.9 million)
compared to income before taxes of Lire 2.0 billion ($1.0 million) for the
second quarter 1999. Loss before taxes for the second quarter 2000 is primarily
due to a reduction in gross profit, an increase in operating and interest
expenses due to the Gazzola acquisition and an increase in corporate overhead
including goodwill amortization not incurred in the prior year period, partially
offset by exchange rate gains.
NET INCOME (LOSS). Net loss for the second quarter 2000 amounted to
Lire 4.5 billion ($2.2 million) compared to net income of Lire 0.6 billion
($279,000) for the second quarter 1999. Net loss for the second quarter 2000 was
primarily the result of the loss from operations due to the factors set forth
above, an increase in net interest expense, partially offset by exchange rate
gains and a reduction in income taxes. Income taxes for the second quarter 2000
decreased to Lire 0.4 billion ($204,000) from Lire 1.4 billion ($695,000) for
the second quarter 1999. Income taxes were derived from operations in Italy and
were accrued despite of the loss before taxes incurred in the second quarter
2000 due to certain items which are not deductible for purposes of regional
income tax in Italy.
EBITDA. EBITDA relating to the Petrini and Gazzola operations
(stand-alone) in the second quarter 2000 decreased by 66.7% to Lire 1.5 billion
($720,000) from Lire 4.4 billion ($2.2 million) in the second quarter 1999. This
decrease was primarily due to a reduction in gross profit in the second quarter
2000 as a result of an increase in sales of lower priced products and an
increase in operating expenses. Consolidated EBITDA for the second quarter 2000
decreased to Lire 0.3 billion ($156,000) from Lire 4.4 billion ($2.2 million)
for the second quarter 1999 due to the additional effect of corporate overhead
expenses not incurred in the second quarter 1999 and higher operating expenses
incurred by PFI in the second 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.
SIX MONTHS PERIOD ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS PERIOD
ENDED JUNE 30, 1999.
We acquired Gazzola on May 3, 2000 and therefore our results of
operations for the six months ended June 30, 2000 include the Gazzola
operations, while our results of operations for the six months ended June 30,
1999 include only the operations of Petrini. As a result, all revenue and
expense accounts in the following discussion for the six months ended June 30,
2000, were increased by Gazzola's revenues and expenses incurred during the two
months May and June 2000.
14
NET SALES. Net sales for the six months ended June 30, 2000 increased
by 9.6% to Lire 143.9 billion ($70.7 million) from Lire 131.3 billion ($64.6
million) for the six months ended June 30, 1999 primarily due to the Gazzola
sales for May and June 2000 which were not included in the prior year period.
Net sales for animal feed for the six months ended June 30, 2000 decreased by
2.3% to Lire 93.7 billion ($46.1 million) from Lire 95.9 billion ($47.1 million)
for the six months ended June 30, 1999, while the sales volume decreased
slightly by 1.2% to 192,700 tons in the six months ended June 30, 2000 from
195,100 tons in the six months ended June 30, 1999. Net sales for pasta and
flour for the six months ended June 30, 2000 increased by 41.6% to Lire 50.2
billion ($24.7 million) from Lire 35.4 billion ($17.4 million) for the six
months ended June 30, 1999 as a result of an increase of 51.6% in sales volumes
to 52,000 tons in the six months ended June 30, 2000 from 34,300 tons in the six
months ended June 30, 1999 due to Gazzola sales in May and June 2000. The
increase in net sales was therefore primarily due to increased volumes in the
food division, partially offset by a decrease in sales prices to our customers
primarily caused by an increase of sales of lower priced products of our Gazzola
operation and resulting from high competition in the markets in which we
operate. Our sales are primarily made to customers within Europe.
GROSS PROFIT. Gross profit for the six months ended June 30, 2000
decreased by 14.0% to Lire 31.9 billion ($15.7 million), or 22.2% of net sales,
from Lire 37.1 billion ($18.2 million), or 28.2% of net sales, for the six
months ended June 30, 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 sufficiently increase sales prices due to high
competition, an increase in sales of lower priced products and an increase in
lower margin private label sales of our Gazzola operation. We anticipate a
decrease in raw material prices resulting from a strong wheat crop which,
together with certain sales price increases, should contribute to an improvement
of our profit margins during the second half of 2000.
OPERATING EXPENSES. Operating expenses relating to the Petrini and
Gazzola operations (stand-alone) in the six months ended June 30, 2000 increased
by 1.5% to Lire 32.3 billion ($15.9 million), or 22.4% of net sales, from Lire
31.8 billion ($15.6 million), or 22.4% of net sales, in the six months ended
June 30, 1999 primarily due to Gazzola operating expenses for May and June 2000
which were not included in the prior year period. The increase associated with
the inclusion of the Gazzola operating expenses was partially offset by cost
reductions of the Petrini efficiency plan introduced in the second half of 1999,
which resulted in a reduction of the Petrini operating expenses of Lire 2.5
billion ($1.2 million), or 8.0%, in the six months ended June 30, 2000
(including reductions due to lower sales volumes) compared to the prior year
period. Consolidated operating expenses, including selling expenses and general
and administrative expenses, for the six months ended June 30, 2000 increased by
9.6% to Lire 34.8 billion ($17.1 million), or 24.2% of net sales, from Lire 31.8
billion ($15.6 million) for the six months ended June 30, 1999, or 24.2% of net
sales. This increase was due to the additional effect of Spigadoro corporate
overhead costs, including goodwill amortization, which were not incurred in the
six months ended June 30, 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 six months ended June 30, 1999 when PFI distributed its
products primarily to supermarkets.
INCOME (LOSS) FROM OPERATIONS. Income from operations at Petrini and
Gazzola (stand-alone) decreased by 89.7% to Lire 0.5 billion ($269,000) during
the six months ended
15
June 30, 2000 as compared to Lire 5.3 billion ($2.6 million) during the
comparable 1999 period. This decrease was primarily due to a reduction in gross
profit in the six months ended June 30, 2000, resulting from the factors set
forth above and an increase in operating expenses due to the Gazzola
acquisition. Consolidated loss from operations for the six months ended June 30,
2000 amounted to Lire 2.9 billion ($1.4 million) compared to income from
operations of Lire 5.3 billion ($2.6 million) for the six months ended June 30,
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 six months ended June 30, 1999, as well as higher operating expenses
incurred by PFI in the six months ended June 30, 2000 due to the new initiatives
described above.
INTEREST EXPENSE. Interest expense for the six months ended June 30,
2000 increased by 180.0% to Lire 3.5 billion ($1.7 million) from Lire 1.3
billion ($619,000) for the six months ended June 30, 1999. This increase was a
result of additional debt incurred and assumed in connection with our
acquisition of Gazzola, interest expense relating to notes payable issued in the
Petrini acquisition in December 1999 and additional costs incurred relating to
our increased factoring activity.
OTHER INCOME. Other income for the six months ended June 30, 2000
increased to Lire 29.1 billion ($14.3 million) from other expenses of Lire 0.3
billion ($169,000) for the six months ended June 30, 1999 primarily as a result
of the sale of all of our Algo Vision shares resulting in a one-time net gain of
Lire 28.1 billion ($13.8 million) and of exchange rate gains on the repayment of
our Lire 12.05 billion promissory note issued in connection with our acquisition
of Petrini in December 1999.
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES. Income before taxes for
the six months ended June 30, 2000 increased to Lire 23.3 billion ($11.4
million) from Lire 3.7 billion ($1.8 million) for the six months ended June 30,
1999. This increase was primarily due to a one-time gain from the sale of all of
our Algo Vision shares and exchange rate gains on the repayment of our Lire note
payable partially offset by a reduction of operating income in the six months
ended June 30, 2000 due to the other factors set forth above.
NET INCOME. Net income for the six months ended June 30, 2000 increased
to Lire 16.1 billion ($7.9 million) from Lire 1.0 billion ($499,000) for the six
months ended June 30, 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 and operating
expenses including goodwill amortization and an increase in income taxes. Income
taxes for the six months ended June 30, 2000 increased to Lire 7.0 billion ($3.4
million) from Lire 2.7 billion ($1.3 million) for the six months ended June 30,
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 six months ended
June 30, 2000 as compared to the six months ended June 30, 1999 was primarily a
result of the fact that our income for the six months ended June 30, 1999 was
derived from operations in Italy while our income for the six months ended June
30, 2000 was derived from a one-time gain 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.
16
EBITDA. EBITDA relating to the Petrini and Gazzola operations
(stand-alone) in the six months ended June 30, 2000 decreased by 42.7% to Lire
4.6 billion ($2.3 million) from Lire 8.1 billion ($4.0 million) in the six
months ended June 30, 1999. This decrease was primarily due to a reduction in
gross profit in the six months ended June 30, 2000 as a result of an increase in
sales of lower priced products and an increase in operating expenses relating to
our Gazzola acquisition. Consolidated EBITDA for the six months ended June 30,
2000 decreased by 70.8% to Lire 2.4 billion ($1.2 million) from Lire 8.1 billion
($4.0 million) for the six months ended June 30, 1999 due to the additional
effect of corporate overhead expenses not incurred in the six months ended June
30, 1999 and higher operating expenses incurred by PFI in the six months ended
June 30, 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 June 30, 2000, our cash and cash equivalents increased to Lire
40.7 billion ($20.0 million) from to Lire 16.0 billion ($7.9 million) at
December 31, 1999.
Net cash provided by operating activities was Lire 22.7 billion ($11.1
million) during the six months ended June 30, 2000 compared to Lire 18.4 billion
($9.0 million) during the six months ended June 30, 1999. Cash provided by
operating activities was primarily the result of a decrease in accounts
receivable in the amount of Lire 15.4 billion ($7.6 million) due to our
factoring program and an increase in accounts payable and other current
liabilities.
Net cash provided by investing activities amounted to Lire 5.1 billion
($2.5 million) for the six months ended June 30, 2000 compared to net cash used
in investing activities of Lire 1.1 billion ($548,000) for the six months ended
June 30, 1999. Cash provided by investing activities was primarily the result of
a one-time gain from our sale of all of our Algo Vision shares in the six months
ended June 30, 2000 resulting in net proceeds of Lire 33.4 billion ($16.4
million), partially offset by purchases of equipment and improvements and the
acquisition of Gazzola in the amount of Lire 24.8 billion ($12.2 million).
Net cash used in financing activities in the six months ended June 30,
2000 totaled Lire 3.8 billion ($1.9 million) compared to Lire 2.8 billion ($1.4
million) in the six months ended June 30, 1999. Cash used in financing
activities was primarily the result of the repayment of notes payable in the
amount of Lire 15.3 billion ($7.5 million) issued in connection with our
acquisition of Petrini in December 1999, a reduction in short term borrowings of
our Petrini operation of Lire 19.8 billion ($9.7 million), partially offset by
an increase in long term debt of Lire 30.6 billion ($15.1 million) which was
primarily due to management's decision to utilize debt rather than available
cash to pay the purchase price of the Gazzola acquisition.
At June 30, 2000, our total indebtedness increased to Lire 146.4
billion ($72.0 million) compared to Lire 89.5 billion ($44.0 million) at
December 31, 1999 primarily due to
17
debt assumed in the Gazzola acquisition and long term debt incurred to pay for
the Gazzola acquisition.
At June 30, 2000, we had short term debt in the aggregate amount of
Lire 69.5 billion ($34.2 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 June 30, 2000, the aggregate amount outstanding under these
facilities was Lire 47.3 billion ($23.2 million) and Lire 98.0 billion ($48.2
million) was unused and available for borrowing. Borrowings under these
facilities are used to support our Italian operations and are serviced by cash
flow from operations. At June 30, 2000, the aggregate amount outstanding under
the promissory notes issued in the acquisition of Petrini was Lire 22.3 billion
($11.0 million) compared to Lire 36.4 billion ($17.9 million) at December, 31,
1999. All of the remaining debt is payable in 2000.
At June 30, 2000, we had long term debt in the aggregate amount of Lire
76.9 billion ($37.8 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. A portion of the long term debt is secured by liens on Petrini's
and Gazzola's property and some of the long term debt is subsidized by
government agencies.
We have 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 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 0.4 points
above 3-months-EURIBOR. The facility has and will be used by us for working
capital purposes, including acquisitions.
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 June 30, 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 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
18
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.
19
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
June 30, 2000, which were not registered under the Securities Act of 1933,
except as follows:
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.
In June 2000, under an Escrow Agreement between Petrini, Starfood
Italia S.r.l. and Banca Piemonte, S.p.A. we issued 2,125,000 shares of our
common stock which were put into escrow to secure Petrini's additional
contingent payment of up to Lire 10 billion (approximately $5.0 million) subject
to certain conditions pursuant to the Shares Purchase Agreement dated May 3,
2000.
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
20
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:
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 28.1 billion ($13.8 million) during the second 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. The
aggregate purchase, price including acquisition expenses, was Lire 27.4 billion
($13.5 million) in cash. We also issued 583,334 shares of our common stock to
Starfood Italia and received $1,750,000 of cash proceeds. 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 issued 2,125,000 shares of our common stock which were put into
escrow 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.
STOCK REPURCHASE PLAN - In a series of transactions commencing in June
2000, we repurchased an aggregate of 47,000 shares of our common stock pursuant
to our June 2000 stock repurchase plan under which we may purchase up to
1,000,000 shares of our common stock as permitted by applicable rules and
regulations adopted under federal security laws. The purchases were made in
open-market transactions at the then-prevailing market prices.
21
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.(1)
10.79 Consulting Agreement, dated as of June 1, 2000, between Spigadoro,
Inc. and Orida Capital USA, Inc.
10.80 Fee Agreement, dated as of January 1, 2000, between Spigadoro, Inc.,
Jacob Agam and Vertical Financial Holdings
27 Financial Data Schedule
- -------------
(1) 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 April 26, 2000, reporting information
under Item 5 and on May 10, 2000 reporting information under Item 2 and on July
17, 2000, reporting information under Item 7 (including financial statements and
pro forma financial statements.
22
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: August 14, 2000
23