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 September 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 November 14, 2000
- --------------------- --------------------------------
Common Stock, $.01 par value 61,034,037 shares
SPIGADORO, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED September 30, 2000
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000
(unaudited) and December 31, 1999 3
Consolidated Statements of Income for Three Months
ended September 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Income for Nine Months
ended September 30, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows for Nine Months
ended September 30, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-20
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Default upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21-22
Item 6. Exhibits and Reports on Form 8-K 22-23
SIGNATURE PAGE 24
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, September 30, December, 31
2000 2000 1999
(unaudited) (unaudited)
------------- -----------------------------
ASSETS (thousands (millions of Lire)
of Dollars)(1)
Current assets:
Cash and cash equivalents $ 17,445 38,396 15,999
Accounts receivable trade, net of allowance
for doubtful accounts of Lire 2,659 millions
in 2000 and Lire 1,857 millions in 1999 21,217 46,699 50,937
Securities held for sale 5,794
Taxes receivable 6,783 14,929 13,895
Inventories 15,821 34,821 21,789
Deferred income taxes 267 588 6,080
Other current assets 3,833 8,437 2,397
--------- ------- -------
Total current assets 65,366 143,870 116,891
Property, equipment and improvements, net 64,970 142,999 70,584
Other assets:
Intangible assets, at amortized cost 17,073 37,578 19,205
Other assets 4,157 9,150 6,728
Assets held for disposition 1,402 3,086 3,837
--------- ------- -------
$ 152,968 336,683 217,245
========= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 36,166 79,601 72,395
Current portion of long-term debt 2,951 6,496 3,589
Accounts payable 32,186 70,843 32,429
Income taxes payable 214 470 886
Accrued payroll and social contributions 2,596 5,714 5,949
Other current liabilities 3,738 8,227 5,039
--------- ------- -------
Total current liabilities 77,851 171,351 120,287
Long-term debt, less current portion 31,214 68,703 13,479
Employees and agents termination indemnities 7,870 17,321 15,328
Deferred income taxes 2,508 5,519 4,963
Social contributions and income taxes payable 2,172 4,781 4,781
--------- ------- -------
Total liabilities 121,615 267,675 158,838
--------- ------- -------
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 63,261,037
in 2000 and 60,942,099 in 1999 554 1,219 1,174
Capital in excess of par value 27,585 60,715 56,781
Retained earnings 4,395 9,674 754
Accumulated other comprehensive income (loss) (894) (1,968) 95
Less treasury stock (102,000 shares) (287) (632) (397)
--------- ------- -------
Total stockholders' equity 31,353 69,008 58,407
--------- ------- -------
$ 152,968 336,683 217,245
========= ======= =======
(1) Exchange rate: Lire 2,201 = U.S. $1 as of September 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
September 30,
---------------------------------------------
2000 2000 1999
-------------- --------- --------
(thousands of (millions of Lire, except
Dollars, except per per share amounts)
share amounts)(1)
Net sales $ 39,188 86,252 63,465
Cost of sales 31,519 69,373 45,808
----------- ---------- ----------
Gross profit 7,669 16,879 17,657
----------- ---------- ----------
Operating expenses:
Selling expenses 6,302 13,871 13,200
General and administrative expenses 3,719 8,186 2,379
----------- ---------- ----------
10,021 22,057 15,579
----------- ---------- ----------
Income (loss) from operations (2,352) (5,178) 2,078
----------- ---------- ----------
Other income (expense):
Interest expense (1,234) (2,716) (366)
Interest income 235 518 -
Other, net 233 513 (167)
----------- ---------- ----------
(766) (1,685) (533)
----------- ---------- ----------
Income (loss) from continuing operations
before income taxes (3,118) (6,863) 1545
Income taxes 119 263 (1,019)
----------- ---------- ----------
Income (loss) from continuing operations (2,999) (6,600) 526
Loss from discontinued operations (256) (564) -
----------- ---------- ----------
Net income (loss) $ (3,255) (7,164) 526
=========== ========== ==========
Earnings per share of common stock:
Basic $ (0.05) (118) 9
=========== ========== ==========
Diluted $ (0.05) (118) 9
=========== ========== ==========
Weighted average number of common shares
outstanding
- basic 60,726,395 60,726,395 57,716,551
=========== ========== ==========
- diluted 60,726,395 60,726,395 59,112,771
=========== ========== ==========
(1) Exchange rate: Lire 2,201 = U.S. $1 as of September 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)
Nine Months Ended
September 30,
-----------------------------------------------------
2000 2000 1999
------------- ---------- ---------
(thousands of (millions of Lire, except
Dollars, except per per share amounts)
share amounts)(1)
Net sales $ 104,560 230,136 194,783
Cost of sales 82,401 181,365 140,042
------------- ---------- ---------
Gross profit 22,159 48,771 54,741
------------- ---------- ---------
Operating expenses:
Selling expenses 17,595 38,726 36,480
General and administrative expenses 8,251 18,160 10,884
------------- ---------- ---------
25,846 56,886 47,364
------------- ---------- ---------
Income (loss) from operations (3,687) (8,115) 7,377
------------- ---------- ---------
Other income (expense):
Interest expense (2,835) (6,240) (1,625)
Interest income 513 1,131 -
Other, net 13,462 29,630 (511)
------------- ---------- ---------
11,140 24,521 (2,136)
------------- ---------- ---------
Income from continuing operations
before income taxes 7,453 16,406 5,241
Income taxes (3,058) (6,732) (3,700)
------------- ---------- ---------
Income from continuing operations 4,395 9,674 1,541
Loss from discontinued operations (342) (754) -
------------- ---------- ---------
Net income $ 4,053 8,920 1,541
============= ========== =========
Earnings per share of common stock:
Basic $ 0.07 147 27
============= ========== =========
Diluted $ 0.07 147 26
============= ========== =========
Weighted average number of
common shares outstanding
- basic 60,693,216 60,693,216 57,698,535
============= ========== ==========
- diluted 60,727,732 60,727,732 59,047,911
============= ========== ==========
(1) Exchange rate: Lire 2,201 = U.S. $1 as of September 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)
Nine Months Ended
September 30,
----------------------------------------------
2000 2000 1999
-------------- ---------- ---------
(thousands (millions of Lire)
of Dollars)(1)
Cash flows from operating activities:
Net income from continuing operations $ 4,395 9,674 1,541
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of securities (12,872) (28,331) -
Depreciation of equipment 3,337 7,345 3,032
Amortization of goodwill 989 2,176 1,015
Provision for employees and agents
termination indemnities 840 1,849 1,690
Provision for doubtful accounts 364 802 1,503
Deferred income taxes 2,585 5,689 (337)
Other non cash items, net 807 1,777 (919)
Payment of employees and agents
termination indemnities (1,452) (3,195) (1,832)
Stock issued for services 178 392 -
Changes in operating assets and liabilities:
Accounts receivable trade 7,678 16,899 4,825
Inventories 660 1,452 1,534
Accounts payable and other current liabilities 2,202 4,846 (2,510)
Accrued payroll and social contributions (965) (2,125) (552)
Other, net (1,107) (2,437) 1,355
----------- --------- ---------
Net cash provided by operating activities 7,639 16,813 10,345
----------- --------- ---------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (11,276) (24,819) -
Proceeds from sale of securities 15,317 33,712 -
Cost of sale of securities (278) (611) -
Purchases of property, equipment and improvements (2,652) (5,837) (1,977)
Proceeds from disposal of property, equipment
and improvements 140 308 423
Additions to intangible assets (644) (1,417) (925)
----------- --------- ---------
Net cash (used in) provided by investing activities 607 1,336 (2,479)
----------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,636 3,600 -
Purchase of treasury stock (114) (251) -
Repayment of notes payable (7,088) (15,601) -
Loan to former parent company - - (437)
Proceeds from long term debt 13,912 30,621 9,972
Payment of long-term debt (2,020) (4,445) (7,135)
Net change in short-term borrowings (5,325) (11,720) (10,927)
----------- --------- ---------
Net cash (used in) provided by financing activities 1,001 2,204 (8,527)
----------- --------- ---------
Effect of exchange rate on cash 929 2,044 -
----------- --------- ---------
Net increase in cash and cash equivalents 10,176 22,397 (661)
Cash and cash equivalents, beginning of the period 7,269 15,999 869
----------- --------- ---------
Cash and cash equivalents, end of period $ 17,445 38,396 208
=========== ========= =========
Supplemental disclosure of cash flow information,
cash paid during the period for:
Interest $ 2,038 4,486 2,319
=========== ========= =========
Income taxes $ 1,235 2,719 2,687
=========== ========= =========
(1) Exchange rate: Lire 2,201 = U.S. $1 as of September 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 September 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 (loss) 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 2,201 to U.S. $1.00, approximating the
Noon Buying rate of the Federal Reserve Bank of New York at
7
September 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 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 September 30, 2000 and 1999
were 102,000 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 September
30, 2000, the Company had unexercised stock options to purchase 1,460,000
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 nine months ended September 30,
2000. The assets were stated at their net realizable value in the balance sheet
at December 31, 1999. See "Part II - 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 $16.8
million, resulting in a realized one-time net gain of Lire 28.3 billion ($12.9
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.
8
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 ($12.4 million) in cash. In addition, the 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 to the sellers on May 3, 2002 of up to Lire 10 billion (approximately
$4.5 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 "Part II - 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 nine months ended September 30, 2000 and 1999 give effect to the
acquisition of Gazzola as if it had occurred on January 1 of each year:
9
Nine months Ended September 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 115,479 254,169 118,837 261,560
=========== ========== ========= ============
Loss before extraordinary items (8,244) (18,144) (1,009) (2,220)
=========== ========== ========= ============
Net income (loss) 1,651 3,633 (1,009) (2,220)
=========== ========== ========= ============
Earnings per share
- - Basic 0.03 60 (0.02) (38)
=========== ========== ========= ============
- - Diluted 0.03 60 (0.02) (37)
=========== ========== ========= ============
Weighted average number
of shares outstanding
- - Basic 60,809,024 58,136,035
=========== ===========
- - Diluted 60,843,540 59,485,411
=========== ===========
NOTE 6. INVENTORIES
September 30, September 30, December 31,
2000 2000 1999
------------- ------------- ------------
(thousands of (millions of Lire)
Dollars)
Raw materials and consumables 9,717 21,387 15,074
Work-in-process 161 355 349
Finished goods 5,943 13,079 6,366
------------- ------------- ------------
15,821 34,821 21,789
============= ============= ============
10
NOTE 7. COMPREHENSIVE INCOME (LOSS)
Nine months Three Months
Ended Ended
September 30, September 30,
--------------------------------------- --------------------------------------
2000 2000 1999 2000 2000 1999
------------- ----------- ----------- ------------- ------------ ---------
(thousands of (millions of Lire) (thousands of (millions of Lire)
Dollars) Dollars)
Net income (loss) 4,053 8,920 1,541 (3,255) (7,164) 526
Other comprehensive
income (loss) net of tax:
Foreign currency
translation adjustments (937) (2,063) 57 (149) (327) 15
------------- ----------- ----------- ------------- ------------ ---------
3,116 6,857 1,598 (3,404) (7,491) 541
============= =========== =========== ============= ============ =========
11
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,
"Petrini " refers to Petrini S.p.A., an Italian corporation and wholly-owned
subsidiary of Spigadoro and "Gazzola" refers to Pastificio Gazzola S.p.A., an
Italian corporation and wholly-owned subsidiary of Petrini.
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 known and unknown factors
and uncertainties which could cause actual results to differ materially from
those described in or implied by such forward-looking statements. Readers are
advised not to place undue reliance on these forward-looking statements which
speak only as of the date they were made. 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, but are not limited to, 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, primarily pasta and
flour products.
12
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
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 "Part II - Item 5. Other Information."
We continue to market and distribute personal computers and personal
computer components, peripherals and software in Germany. However, in connection
with our acquisition of Petrini S.p.A. in December 1999, we sold all of the
capital stock of FSE Computer-Handel GmbH & Co. KG and FSE Computer-Handel
Verwaltungs GmbH owned by us in January 2000. The FSE entities were responsible
for the marketing of our high performance personal computers in Germany. We also
intend to sell Columbus Computer Handel and its affiliates. Columbus distributes
personal computer components, peripherals and software, as well as personal
computers, in Germany. We 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 2,201 = US $1.00, which approximates the Noon Buying Rate of
the Federal Reserve Bank of New York on September 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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTH
PERIOD ENDED SEPTEMBER 30, 1999.
We acquired Gazzola on May 3, 2000 and therefore our results of
operations for the third quarter 2000 include the Gazzola operations, while our
results of operations for the third quarter 1999 include only the operations of
Petrini. As a result, all revenue and expense accounts in the following
discussion for the third quarter 2000 were increased by Gazzola's revenues and
expenses incurred during the third quarter 2000.
NET SALES. Net sales for the third quarter 2000 increased by 35.9% to
Lire 86.3 billion ($39.2 million) from Lire 63.5 billion ($28.8 million) for the
third quarter 1999 primarily due to the Gazzola sales for the third quarter 2000
which were not included in the prior year period. Net
13
sales for animal feed for the third quarter 2000 remained stable at Lire 46.9
billion ($21.3 million) compared to the third quarter 1999, while the sales
volume increased by 4% to 96,000 tons in the third quarter 2000 from 92,300 tons
in the third quarter 1999. Net sales for pasta and flour for the third quarter
2000 increased by 138.8% to Lire 39.4 billion ($17.9 million) from Lire 16.5
billion ($7.5 million) for the third quarter 1999 as a result of an increase of
146.6% in sales volumes to 39,700 tons in the third quarter 2000 from 16,100
tons in the third quarter 1999. This increase was due to the inclusion of
Gazzola's sales in the third quarter 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 related to a sales mix favoring lower
priced products primarily at our private label Gazzola operation, as well as
competitive pressures. Our food sales are primarily made to customers within
Europe.
GROSS PROFIT. Gross profit for the third quarter 2000 decreased by 4.4%
to Lire 16.9 billion ($7.7 million), or 19.6% of net sales, from Lire 17.7
billion ($8.0 million), or 27.8% of net sales, for the third quarter 1999. This
decrease was primarily due to competitive pressure on sales prices and the
change in sales mix described above, coupled with increases in raw material
costs primarily related to a strengthening of the U.S. Dollar against the Lire
and higher energy costs. In addition, cost of sales for the third quarter 2000
includes non-recurring charges of Lire 0.9 billion ($406,000) related to
severance payments made in connection with Petrini's ongoing headcount
reduction. Excluding these non-recurring charges, gross profit for the third
quarter 2000 would have been Lire 17.8 billion ($8.1 million). In order to
help offset the factor set forth above, we increased certain sales prices at the
end of the third quarter 2000. These price increases, together with anticipated
stable to lower raw material prices, are expected to result in an improvement of
our profit margins during the fourth quarter of 2000.
OPERATING EXPENSES. Operating expenses relating to the Petrini and
Gazzola operations (stand-alone) in the third quarter 2000 increased by 31.2% to
Lire 20.4 billion ($9.3 million) or 23.7% of net sales from Lire 15.6 billion
($7.1 million) or 24.5% of net sales in the third quarter 1999 primarily due to
Gazzola operating expenses for the third quarter 2000 which were not included in
the prior year period. In addition, operating expenses for the third quarter
2000 includes additional non-recurring charges of Lire 0.95 billion ($430,000)
related to severance payments made in connection with Petrini's ongoing
headcount reduction. Excluding these non-recurring charges, operating expenses
relating to the Petrini and Gazzola operations (stand-alone) in the third
quarter 2000 would have been Lire 19.5 billion (8.8 million). Consolidated
operating expenses, including selling expenses and general and administrative
expenses, for the third quarter 2000 increased by 41.6% to Lire 22.1 billion
($10 million), or 25.6% of net sales, from Lire 15.6 billion ($7.1 million) for
the third quarter 1999, or 24.6% 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 third quarter 1999 as well as
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 third quarter 1999
when PFI distributed its products primarily to supermarkets. The non-recurring
severance payments discussed above (in "Operating Expenses" and in "Gross
Profit") relate to headcount reductions of 28 persons, which will begin to
positively impact gross profit and operating expenses during the fourth quarter
2000 and, to a greater extent, in 2001. See "EBITDA" below.
INCOME (LOSS) FROM OPERATIONS. Loss from operations at Petrini and
Gazzola (stand-alone) amounted to Lire 3.1 billion ($1.4 million) during the
third quarter 2000 as compared to income from operations of Lire 2.1 billion
($944,000) during the comparable 1999 period. This decrease was primarily due to
a reduction in gross profit in the third quarter 2000 resulting from the factors
set forth above and an increase in operating expenses due to the Gazzola
acquisition.
14
Consolidated loss from operations for the third quarter 2000 amounted to Lire
5.2 billion ($2.4 million) compared to income from operations of Lire 2.1
billion ($944,000) for the third quarter 1999 due to the reasons discussed above
and the additional effect of an increase in operating expenses as a result of
corporate overhead and goodwill amortization expenses not incurred in the third
quarter 1999, as well as higher operating expenses incurred by PFI in the third
quarter 2000 due to the new initiatives described above.
INTEREST EXPENSE. Interest expense for the third quarter 2000 increased
to Lire 2.7 billion ($1.2 million) from Lire 0.4 billion ($166,000) for the
third quarter 1999. This increase was a result of additional debt incurred 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. Increase in interest
expense was partially offset by interest income of Lire 0.5 billion ($235,000)
from cash investments.
OTHER INCOME. Other income for the third quarter 2000 increased to
Lire 0.5 billion ($233,000) from other expense of Lire 0.2 billion ($76,000)
for the third quarter 1999 primarily as a result of exchange rate gains.
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES. Loss before
taxes for the third quarter 2000 amounted to Lire 6.9 billion ($3.1 million)
compared to income before taxes of Lire 1.5 billion ($702,000) for the third
quarter 1999. Loss before taxes for the third 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, as described above.
NET INCOME (LOSS). Net loss for the third quarter 2000 amounted to Lire
7.2 billion ($3.3 million) compared to net income of Lire 0.5 billion ($239,000)
for the third quarter 1999. Net loss for the third 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 tax credit for the third quarter 2000 amounted
to Lire 0.3 billion ($119,000) compared to income taxes of Lire 1.0 billion
($463,000) for the third quarter 1999. Income tax credits were due to the
losses incurred in the third quarter 2000.
EBITDA. EBITDA relating to the Petrini and Gazzola operations
(stand-alone) in the third quarter 2000 decreased by 84.5% to Lire 0.5 billion
($236,000) from Lire 3.4 billion ($1.5 million) in the third quarter 1999. This
decrease was primarily due to a reduction in gross profit in the third quarter
2000 as a result of an increase in sales of lower priced products and raw
material cost increases, as well as an increase in operating expenses related
to our Gazzola acquisition and non-recurring severance payments in connection
with headcount reductions (pursuant to Petrini's efficiency plan). Excluding
non-recurring charges related to the severance payments described above of an
aggregate of Lire 1.84 billion ($835,000), EBITDA relating to the Petrini and
Gazzola operations (stand-alone) during the third quarter 2000 would have been
Lire 2.34 billion ($1.1 million). Consolidated EBITDA for the third quarter 2000
decreased to a loss of Lire 0.9 billion ($431,000) from a gain of Lire 3.4
billion ($1.5 million) for the third quarter 1999 due to the additional effect
of corporate overhead expenses not incurred in the third quarter 1999 and higher
operating expenses incurred by PFI in the third quarter 2000 due to the
investment in our food service initiative. The non-recurring severance payments
aggregating Lire 1.84 billion ($835,000) discussed above relate to net headcount
reductions of 28 positions. We anticipate that further reductions of redundant
personnel will continue in the fourth quarter of 2000 until net reductions
approximate 55 positions. Consequently, while the initial reduction of 28
positions will begin to show benefits in the fourth quarter 2000, we expect to
incur additional charges for severance payments in the fourth quarter relating
to the remainder of the reductions. The total savings associated with all of
such reductions, which we estimate at an aggregate of approximately Lire 3.9
billion ($1.8 million) annually, and which will positively impact gross profit
and operating expenses, as well as EBITDA, will begin to be recognized in the
first quarter 2001. EBITDA should not be considered an alternative to income
from operations, net income, cash flow or any other measure of performance as
15
determined in accordance with generally accepted accounting principles, as an
indicator of operating performance or as a measure of liquidity.
NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS
PERIOD ENDED SEPTEMBER 30, 1999.
We acquired Gazzola on May 3, 2000 and therefore our results of
operations for the nine months ended September 30, 2000 include the Gazzola
operations, while our results of operations for the nine months ended September
30, 1999 include only the operations of Petrini. As a result, all revenue and
expense accounts in the following discussion for the nine months ended September
30, 2000, were increased by Gazzola's revenues and expenses incurred during the
five months period from May 1, 2000 through September 30, 2000.
NET SALES. Net sales for the nine months ended September 30, 2000
increased by 18.1% to Lire 230.1 billion ($104.6 million) from Lire 194.8
billion ($88.5 million) for the nine months ended September 30, 1999 primarily
due to the Gazzola sales since May 1, 2000 which were not included in the prior
year period. Net sales for animal feed for the nine months ended September 30,
2000 decreased by 1.6% to Lire 140.6 billion ($63.9 million) from Lire 142.8
billion ($64.9 million) for the nine months ended September 30, 1999, while the
sales volume increased slightly by 0.5% to 288,700 tons in the nine months
ended September 30, 2000 from 287,300 tons in the nine months ended September
30, 1999. Net sales for pasta and flour for the nine months ended September 30,
2000 increased by 72.3% to Lire 89.6 billion ($40.7 million) from Lire 52.0
billion ($23.6 million) for the nine months ended September 30, 1999 as a result
of an increase of 82.3% in sales volumes to 91,700 tons in the nine months ended
September 30, 2000 from 50,300 tons in the nine months ended September 30, 1999.
This increase was due to Gazzola sales since May 1, 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 related to a sales mix favoring
lower priced products primarily at our private label Gazzola operation, as well
as competitive pressures. Our food sales are primarily made to customers within
Europe.
GROSS PROFIT. Gross profit for the nine months ended September 30, 2000
decreased by 10.9% to Lire 48.8 billion ($22.2 million), or 21.2% of net sales,
from Lire 54.7 billion ($24.9 million), or 28.1% of net sales, for the nine
months ended September 30, 1999. This decrease was primarily due to competitive
pressure on sales prices and the change in sales mix described above, coupled
with increases in raw material costs primarily related to a strengthening of the
U.S. Dollar against the Lire and higher energy costs. In addition, cost of sales
for the third quarter 2000 includes non-recurring charges of Lire 0.9 billion
($406,000) related to severance payments made in connection with Petrini's
ongoing headcount reduction. Excluding these non-recurring charges, gross profit
for the 2000 nine months would have been Lire 49.7 billion ($22.6 million). In
order to help offset the factors set forth above, we increased certain sales
prices at the end of the third quarter 2000. These price increases, together
with anticipated stable to lower raw material prices, are expected to result in
an improvement of our profit margins during the fourth quarter of 2000.
OPERATING EXPENSES. Operating expenses relating to the Petrini and
Gazzola operations (stand-alone) in the nine months ended September 30, 2000
increased by 11.2% to Lire 52.7 billion ($23.9 million), or 22.9% of net sales,
from Lire 47.4 billion ($21.5 million), or 24.3% of net sales, in the nine
months ended September 30, 1999 primarily due to Gazzola operating
16
expenses since May 1, 2000 which were not included in the prior year period. In
addition, operating expenses for the 2000 nine months includes additional
non-recurring charges of Lire 0.95 billion ($430,000) related to severance
payments made in connection with Petrini's ongoing headcount reduction.
Excluding these non-recurring charges, operating expenses relating to the
Petrini and Gazzola operations (stand-alone) in the 2000 nine months would have
been Lire 51.8 billion ($23.5 million). Consolidated operating expenses,
including selling expenses and general and administrative expenses, for the nine
months ended September 30, 2000 increased by 20.1% to Lire 56.9 billion ($25.8
million), or 24.7% of net sales, from Lire 47.4 billion ($21.5 million) for the
nine months ended September 30, 1999, or 24.3% 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 nine months ended
September 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
nine months ended September 30, 1999 when PFI distributed its products primarily
to supermarkets. The non-recurring severance payments aggregating Lire 1.84
billion ($835,000) discussed above (in "Operating Expenses" and in "Gross
Profit") relate to headcount reductions of 28 persons, which will begin to
positively impact gross profit and operating expenses in the fourth quarter 2000
and, to a greater extent, in 2001. See "EBITDA" below.
INCOME (LOSS) FROM OPERATIONS. Loss from operations at Petrini and
Gazzola (stand-alone) amounted to Lire 2.6 billion ($1.1 million) during the
nine months ended September 30, 2000 as compared to income from operations of
Lire 7.4 billion ($3.4 million) during the comparable 1999 period. This decrease
was primarily due to a reduction in gross profit in the nine months ended
September 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 nine months ended September 30, 2000 amounted to Lire 8.1
billion ($3.7 million) compared to income from operations of Lire 7.4 billion
($3.4. million) for the nine months ended September 30, 1999 due to the reasons
discussed above and the additional effect of an increase in operating expenses
as a result of corporate overhead and goodwill amortization expenses not
incurred in the nine months ended September 30, 1999, as well as higher
operating expenses incurred by PFI in the nine months ended September 30, 2000
due to the new initiatives described above.
INTEREST EXPENSE. Interest expense for the nine months ended September
30, 2000 increased by 284% to Lire 6.2 billion ($2.8 million) from Lire 1.6
billion ($738,000) for the nine months ended September 30, 1999. This increase
was a result of additional debt incurred 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. Increase in interest expense was partially offset
by interest income of Lire 1.1 billion ($513,000) from cash investments during
the nine month period
OTHER INCOME. Other income for the nine months ended September 30, 2000
increased to Lire 29.6 billion ($13.5 million) from other expenses of Lire 0.5
billion ($232,000) for the nine months ended September 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 28.3 billion ($12.9 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.
17
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES. Income before taxes for
the nine months ended September 30, 2000 increased to Lire 16.4 billion ($7.5
million) from Lire 5.2 billion ($2.4 million) for the nine months ended
September 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 our US dollar
investments and on the repayment of our Lire note payable, partially offset by a
reduction of operating income in the nine months ended September 30, 2000 due to
the other factors set forth above.
NET INCOME. Net income for the nine months ended September 30, 2000
increased to Lire 8.9 billion ($4.1 million) from Lire 1.5 billion ($700,000)
for the nine months ended September 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 nine months ended September 30, 2000
increased to Lire 6.7 billion ($3.1 million) from Lire 3.7 billion ($1.7
million) for the nine months ended September 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 nine months ended September 30, 2000 as compared to the
nine months ended September 30, 1999 was primarily a result of the fact that our
income for the nine months ended September 30, 1999 was derived from operations
in Italy while our income for the nine months ended September 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.
EBITDA. EBITDA relating to the Petrini and Gazzola operations
(stand-alone) in the nine months ended September 30, 2000 decreased by 55% to
Lire 5.1 billion ($2.3 million) from Lire 11.4 billion ($5.2 million) in the
nine months ended September 30, 1999. This decrease was primarily due to a
reduction in gross profit in the nine months ended September 30, 2000 as a
result of an increase in sales of lower priced products and raw material cost
increases, as well as an increase in operating expenses relating to our Gazzola
acquisition and non-recurring severance payments in connection with headcount
reductions (pursuant to Petrini's efficiency plan). Excluding non-recurring
charges related to the severance payments described above of an aggregate of
Lire 1.84 billion ($835,000), EBITDA relating to the Petrini and Gazzola
operations (stand-alone) during the 2000 nine months would have been Lire 6.94
billion ($3.2 million). Consolidated EBITDA for the nine months ended September
30, 2000 decreased by 87.7% to Lire 1.4 billion ($639,000) from Lire 11.4
billion ($5.2 million) for the nine months ended September 30, 1999 due to the
additional effect of corporate overhead expenses not incurred in the nine months
ended September 30, 1999 and higher operating expenses incurred by PFI in the
nine months ended September 30, 2000 due to the investment in our food service
initiative. The non-recurring severance payments aggregating Lire 1.84 billion
($835,000) discussed above relate to net headcount reductions of 28 positions.
We anticipate that further reductions of redundant personnel will continue in
the fourth quarter of 2000 until the net reductions approximate 55 positions.
Consequently, while the initial reduction of 28 positions will begin to show
benefits in the fourth quarter 2000, we expect to incur additional charges for
severance payments in the fourth quarter relating to the remainder of the
reductions. The total saving associated with all of such reductions, which we
estimate at an aggregate of approximately Lire 3.9 billion ($1.8 million)
annually, and which will positively impact gross profit and operating expenses,
as well as EBITDA, will begin to be recognized in the first quarter 2001. 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 September 30, 2000, our cash and cash equivalents increased to
Lire 38.4 billion ($17.4 million) from to Lire 16 billion ($7.3 million) at
December 31, 1999.
18
Net cash provided by operating activities was Lire 16.8 billion ($7.6
million) during the nine months ended September 30, 2000 compared to Lire 10.3
billion ($4.7 million) during the nine months ended September 30, 1999. Cash
provided by operating activities was primarily the result of a decrease in
accounts receivable in the amount of Lire 16.9 billion ($7.7 million) due to our
factoring program.
Net cash provided by investing activities amounted to Lire 1.3 billion
($607,000) for the nine months ended September 30, 2000 compared to net cash
used in investing activities of Lire 2.5 billion ($1.1 million) for the nine
months ended September 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 nine months ended September 30, 2000 resulting in net proceeds of
Lire 33.7 billion ($15.3 million), partially offset by purchases of equipment
and improvements and the acquisition of Gazzola in the amount of Lire 24.8
billion ($11.3 million).
Net cash provided by financing activities in the nine months ended
September 30, 2000 totaled Lire 2.2 billion ($1.0 million) compared to net cash
used in financing activities of Lire 8.5 billion ($3.9 million) in the nine
months ended September 30, 1999. Cash provided by financing activities was
primarily the result of a net increase in long term debt of Lire 26.2 billion
($11.9 million), which was due to management's decision to utilize debt rather
than available cash to pay the purchase price of the Gazzola acquisition,
partially offset by the repayment of notes payable in the amount of Lire 15.6
billion ($7.1 million) issued in connection with our acquisition of Petrini in
December 1999, and a reduction in short term borrowings at our Petrini operation
of Lire 11.7 billion ($5.3 million).
At September 30, 2000, our total indebtedness increased to Lire 154.8
billion ($70.3 million) compared to Lire 89.5 billion ($40.7 million) at
December 31, 1999 primarily due to debt assumed at our acquired Gazzola
operation and long term debt incurred to pay for the Gazzola acquisition.
At September 30, 2000, we had short term debt in the aggregate amount
of Lire 79.6 billion ($36.2 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 September 30, 2000, the aggregate amount outstanding under these
short term credit facilities was Lire 55.3 billion ($25.1 million), and Lire
55.6 billion ($25.3 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 September 30, 2000, the aggregate
amount outstanding under the promissory notes issued in the acquisition of
Petrini was Lire 24.3 billion ($11.0 million) compared to Lire 36.4 billion
($16.5 million) at December 31, 1999. All of the remaining Petrini debt is
payable in December 2000.
At September 30, 2000, we had long term debt in the aggregate amount of
Lire 75.2 billion ($34.2 million). The debt matures over varying terms ranging
from October 2000 to
19
March 2007 and accrues interest either at fixed annual interest rates ranging
from 1.9% to 11.4% 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 has 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 approximately $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 (approximately $27.3 million), of
which Lire 30 billion ($13.6 million) was outstanding as of September 30, 2000.
The term of the facility is 18 months and outstanding balances 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 at least the next 12 months,
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 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.
20
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In September 2000, we issued 100,000 and 8,889 shares of our common
stock to our counsel and to Ricardo di Lorenzo, our Chief Financial Officer,
respectively, for services rendered.
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
21
STOCK REPURCHASE PLAN - In a series of transactions commencing in June
2000, we repurchased an aggregate of 52,000 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
- -------------
22
(1) Incorporated by reference to the Registrant's Current Report on
Form 8-K/A as filed on July 19, 2000.
(b) Reports on Form 8-K.
We filed reports on Form 8-K on July 17, 2000, reporting information
under Item 7 (including financial statements and pro forma financial statements)
and on July 19, 2000, reporting information under Item 7.
23
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 and
Chief Executive Officer
/s/ Ricardo di Lorenzo
----------------------
Ricardo di Lorenzo
Chief Financial Officer
Date: November 14, 2000
24