-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fs3EntaANLWmhxvtKSxYQtZK6vHyVIi5tV8yKGDJ7ZiqAwcxBSgD72Lvz5MJgn+V boBUMTOjsylEO4jL2gaH/A== 0000868075-02-000009.txt : 20020515 0000868075-02-000009.hdr.sgml : 20020515 20020515162508 ACCESSION NUMBER: 0000868075-02-000009 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLASSICA GROUP INC CENTRAL INDEX KEY: 0000868075 STANDARD INDUSTRIAL CLASSIFICATION: DAIRY PRODUCTS [2020] IRS NUMBER: 133413467 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-19721 FILM NUMBER: 02652838 BUSINESS ADDRESS: STREET 1: 1835 SWARTHMORE AVENUE CITY: LAKEWOOD STATE: NJ ZIP: 08701 BUSINESS PHONE: 7323633800 MAIL ADDRESS: STREET 1: 1835 SWARTHMORE AVE CITY: LAKEWOOD STATE: NJ ZIP: 08701 FORMER COMPANY: FORMER CONFORMED NAME: EMPIRE SPECIALTY FOODS INC /NY/ DATE OF NAME CHANGE: 19600201 10QSB 1 tcgiq102.txt QUARTERLY REPORT MARCH 31, 2002 U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB (Mark One) [x]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 Commission file number 0-19721 THE CLASSICA GROUP, INC. (Exact name of small business issuer as specified in its charter) New York 13-3413467 (State or other jurisdiction (IRS Employer identification no.) of incorporation or organization) 1835 Swarthmore Avenue, Lakewood, New Jersey 08701 (Address of principal executive offices) (732) 363-3800 (Issuer's telephone number) --------------------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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..... APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d)of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes .......No ....... APPLICABLE ONLY TO CORPORATE ISSUERS Number of shares outstanding of each of the issuer's classes of common equity as of March 31, 2002 Title of Each Class Number of Shares Outstanding Common Stock, $.001 par value per share 3,026,211 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheet (Unaudited) March 31, 2002 ASSETS ------------ Current Assets: Cash and cash equivalents $119,522 Accounts receivable 333,876 Inventories 378,402 Prepaid expenses and other current assets 81,086 --------------- Total current assets 912,886 Property and equipment, net 924,534 Intangible assets, net 1,523,675 Other asets 412,728 Goodwill 157,500 --------------- TOTAL ASSETS $3,931,323 =============== See notes to the consolidated financial statements(Unaudited). 2 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheet (Unaudited) (continued) March 31, 2002 LIABILITIES AND STOCKHOLDERS' EQUITY ---------------------------------------------------------- LIABILITIES ----------------- Current Liabilities: Current portion of long-term debt $91,800 Accounts payable 1,328,912 Accrued expenses 80,136 --------------- Total current liabilities 1,500,848 Long-term debt, less current portion 79,634 --------------- Total liabilities 1,580,482 --------------- STOCKHOLDERS' EQUITY ----------------------------------- Preferred stock Class A participating convertible preferred shares, $1 par value, stated at liquidation value, authorized 200 shares of which 16.5 shares are issued and outstanding. 397,898 Common stock Par value $.001 - 25,000,000 shares authorized, 3,026,211 shares issued and outstanding 3,026 Additional paid-in-capital 3,955,572 Accumulated deficit (2,005,655) --------------- Total Stockholders' Equity 2,350,841 --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,931,323 =============== See notes to the consolidated financial statements (Unaudited). 3 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) For the Three Months Ended March 31, 2002 and 2001 March 31, 2002 2001 ------------------------------- Net sales $ 1,776,240 $ 1,622,472 Cost of sales 1,330,256 1,195,377 ------------------------------- Gross profit 445,984 427,095 Selling, general and administrative expenses 556,329 368,666 ------------------------------- Income (loss) from operations (110,345) 58,429 Interest expense - net 44,257 36,822 ------------------------------- Income (loss) from continuing operations (154,602) 21,607 Loss from discontinued operations 0 (126,984) ------------------------------- Net loss $ (154,602) $ (105,377) =============================== EARNINGS PER COMMON SHARE BASIC & DILUTED Income (loss) from continuing operations $ (0.06) $ 0.01 Loss from discontinued operations - (0.07) ------------------------------- Net loss $ (0.06) $ (0.06) =============================== Weighted average shares outstanding, basis and diluted 2,747,050 1,848,118 See notes to the consolidated financial statements (Unaudited). 4 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2002 and 2001 March 31, 2002 2001 ------------------------- Cash flows from operating activities: Net income (loss) continuing operations $ (154,602) $ 21,607 (Loss) from discontinued operations - (126,984) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 79,553 56,963 (Increase) decrease in accounts receivable (178,484) 57,076 Decrease in inventories 68,251 29,862 (Increase) decrease in prepaid expenses and other assets (24,022) 43,139 Increase in accounts payable and accrued expenses 62,665 19,579 ------------------------- Net cash provided by (used in) operating activities (146,639) 101,242 ------------------------- Cash flows from investing activities: Purchase of fixed assets (84,937) (34,705) Increase in other assets (7,172) - Increase in intangible assets - (37,111) Increase in net assets discontinued operations - (5,419) ------------------------- Net cash (used in) investing activities (92,109) (77,235) ------------------------- Cash flows from financing activities: Repayment of long-term debt (22,727) (8,767) Issuance of capital stock-exercise of options 280,000 - ------------------------- Net cash provided by (used in) financing activities 257,273 (8,767) ------------------------- Net increase in cash and cash equivalents 18,525 15,240 Cash-discontinued operations - (30,289) Cash and cash equivalents at beginning of period 100,997 31,104 ------------------------- Cash and cash equivalents at end of period $ 119,522 $ 16,055 ========================= Supplemental disclosure of cash flows information: Interest paid $ 44,257 $ 36,822 ========================= See notes to the consolidated financial statements (Unaudited). 5 THE CLASSICA GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 --ORGANIZATION AND BASIS OF PRESENTATION The Classica Group, Inc. (the "Company") is a holding company and through its Cucina Classica Italiana, Inc. ("CCI") subsidiary is a national distributor of specialty cheeses and Italian meat products. The Company's Classica Microwave Technologies, Inc. ("CMT") subsidiary provides solutions to serious bacterial problems facing the food industry in addition to providing an innovative microwave based processing system designed to maximize productivity while reducing operating costs in food processing. A majority of the Company's customers are food retailers and distributors. The unaudited consolidated financial statements included herein have been prepared by the Company in accordance with the same accounting principles followed in the presentation of the Company's annual financial statements for the year ended December 31, 2001 pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments that are of a normal and recurring nature and are necessary to fairly present the financial position, results of operations, and cash flows of the Company have been made on a consistent basis. This report should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-KSB Annual Report for the year ended December 31, 2001. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany balances are eliminated. Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The Company has recorded a full valuation allowance related to the deferred tax asset at March 31, 2002. NOTE 2 -PER SHARE DATA The per share data has been calculated using the weighted average number of Common Shares outstanding during each period presented on both a basic and diluted basis in accordance with SFAS 128. Outstanding options and warrants have been excluded from the computation due to their antidilutive effect. 6 THE CLASSICA GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3 - Property and equipment Property and equipment are carried at cost, less accumulated depreciation and amortization computed on a straight-line basis over the lesser of the estimated useful lives of the assets (generally three to ten years for equipment, furniture, and equipment and the lease term for leasehold improvements). Property and equipment consists of the following at March 31, 2002: Furniture & equipment $ 1,623,496 Leasehold improvements 103,885 ------------- Total cost 1,727,381 Less accumulated depreciation and amortization (802,847) ------------- $ 924,534 ============= NOTE 4 - Intangible Assets Patents are amortized over their estimated useful lives, approximately 15 years. Intangible assets are reviewed for impairment whenever events or circumstances indicate impairment might exist or at lease annually. The Company assesses the recoverability of its assets by comparing projected undiscounted cash flows associated with those assets against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Intangible assets consist of the following at March 31, 2002: Importing licenses $ 39,286 Patents 1,552,328 ---------------- 1,591,614 Accumulated amortization (67,939) ---------------- Intangible assets, net $ 1,523,675 ================ NOTE 5 - Goodwill The Company adopted SFAS No. 142 at the beginning of 2002 for goodwill recognized in the Balance Sheet as of January 1, 2002. This standard changed the accounting for goodwill from an amortization method to an impairment-only approach and introduced a new model for determining impairment changes. The new impairment model requires performance of a two-step test for operations that have goodwill assigned to them. First, it requires the comparison of the book value of net assets to the fair value of the related operation. Fair values are estimated using discounted cash flows, subject to adjustment based upon the Company's market capitalization at the date of evaluation. If fair value is determined to be less than book, a second step is required to be performed to compute the amount of the impairment. At March 31, 2002 the fair value of the operation exceeded the book value and, accordingly, no impairment was indicated. 7 THE CLASSICA GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 6 -- SEGMENT REPORTING Industry segment information at March 31, 2002 and 2001 is summarized as follows: Total Revenue Operating Profits (Loss) --------------------------- ---------------------- 2002 2001 2002 2001 --------------------------- ---------------------- CCI $ 1,771,878 $ 1,593,287 $ 147,915 $126,356 CMT - - (163,391) (10,961) --------------------------- ---------------------- Total Segment 1,771,878 1,593,287 (15,476) 115,395 Eliminations and other corporate income(expenses) 4,362 29,185 (94,869) (56,966) --------------------------- ---------------------- Consolidated $ 1,776,240 $ 1,622,472 (110,345) 58,429 =========================== Interest expense 44,257 36,822 ---------------------- Income (loss) from continuing operations $ (154,602) $ 21,607 ====================== Depreciation and Capital Expenditures Amortization Expense Identifiable Assets 2002 2001 2002 2001 2002 2001 ---------------------------------------------------------------- CCI $5,407 $ 30,024 $41,069 $49,048 $ 1,374,262 $1,667,137 CMT 79,530 38,069 - 527,394 34,000 Corporate - 4,681 415 7,915 2,029,667 2,390,732 Discontinued Op. - - - - 643,029 ---------------------------------------------------------------- Consolidated $ 84,937 $ 34,705 $79,553 $56,963 $ 3,931,323 $4,734,898 ================================================================ NOTE 7 - Discontinued Operations December 28, 2000 the company adopted a formal plan to discontinue the operations of its Deli King, Inc. ("Deli King") mobile catering subsidiary and to dispose of the assets of the business segment. The operations of Deli King ceased on March 9, 2001. Operating results of Deli King for the three months ended March 31, 2001 are shown separately in the accompanying income statement. Net sales of Deli King for the three months ended March 31, 2001 were $361,157. This amount is not included in net sales in the accompanying financial statements. At December 31, 2001, all of the assets of Deli King, Inc. had been disposed of or deemed to be worthless. In February 2002, Deli King, Inc. filed for liquidation under Chapter VII in the U.S. Bankruptcy Court for the District of New Jersey. Management believes that there are no material present or future liabilities on the part of the Company for matters relating to Deli King, Inc. 8 Item 2. Management's Discussion and Analysis Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Unaudited Financial Statements and related notes, which are contained herein. Results of Operations for the Three Months Ended March 31, 2002 and 2001. Net sales for the three months ended March 31, 2002 were $ 1,776,240 compared with $1,622,472 in 2001, an increase of $ 153,768, or 9.5%. Most of this increase is the result of an increase in the sale of the imported Galbani(R) mascarpone product that was brought in from Italy by air rather than steamship beginning January 2, 2002. The resulting 21 days of additional shelf life makes the product more attractive to CCI's existing customers. Further, CCI has begun developing new business for the short shelf life imported products. The Company generated gross profit of $445,984 or 25.1% of net sales in 2002 verses $427,095 or 26.3% of net sales in 2001. The decrease in gross profit margin was the result of CCI's loss of gross margin on the increased business as the result of the significantly higher freight costs resulting from bringing the product in by air. However, with the recovery of the leisure services market the sales of the short shelf life imported mascarpone product and other short shelf life products should increase resulting in an increase in total profits in spite of the lower gross margins. Selling, general and administrative expenses were $556,329 in 2002 verses $368,666 in 2001. This represents an increase of $187,663, an increase of 50.9%, of which $163,391 represents start-up costs of the CMT subsidiary as compared to $10,961 in those costs for the same period in 2001. Income from continuing operations for the three months ended March 31, 2002 was a loss of ($154,602) versus income of $21,607 in 2001. This represents a reduction of $176,209 due to the factors discussed above. Interest expense was $44,257 and $36,822 for the three months ended March 31, 2002 and 2001 respectively. The increase is the result of a short-term financing arrangement with one of CCI's vendors. The Company reported no provision for Federal income taxes for the three months ended March 31, 2002 and 2001, as the Company had net losses for both periods. 9 Liquidity and Capital Resources The Company's sources of capital include, but are not limited to, the issuance of public or private debt, bank borrowings, capital leases and the issuance of equity securities. At March 31, 2002, the Company had a net worth of $2,350,841 compared to $2,684,749 at March 31, 2001. The Company has limited requirements for capital expenditures in the immediate future, except for the start-up of the new CMT subsidiary for which the Company is planning a private placement. CCI's factoring arrangement with GMAC Commercial Credit, LLC has adequate availability to provide working capital to support sales growth in that division. The Company utilizes capital leases for the acquisition of operating assets at its subsidiaries when appropriate. At March 31, 2002, the Company had capital leases with an unamortized balance of $171,434. Management believes that the Company has sufficient working capital to meet the needs of its current level of operations, with the exception of the requirements of CMT. Seasonality The Company's businesses are subject to the effects of seasonality. Consequently, the operating results for the quarter ended March 31, 2002 are not necessarily indicative of results to be expected for the entire year. Anticipated Future Growth CMT has a unique patented and proprietary expertise in microwave processing applications. While the technology has been in use in Europe and in Japan, with more than 200 successful installations, it is virtually unknown beyond those markets. CMT plans to penetrate these new markets and generate revenues from 3 distinct sources: >> Sales of Microwave heat processing systems. >> Leasing of Microwave heat processing systems >> Sales of Technical Services. In order to facilitate sales of the company's Microwave systems, a major campaign of communications and education will be undertaken among future users, government regulatory agencies and food industry professionals - globally. 10 The objectives of this campaign are: >> To introduce the company and the benefits of its systems to the universe of future potential users >> To gain for these technologies a high level of recognition and acceptance. Concurrent with the communications and education campaign, the company will establish its direct sales force in the USA, and a network of exclusive agents worldwide to identify, negotiate and sell its equipment to clients on a global basis. Leasing of Microwave heat processing systems is the company's second channel of revenues. It has importance far beyond the actual cash-flow it will generate, since it will be the premier marketing vehicle through which the Company will introduce its technology to small and mid size first time users. The program will provide these new users a low risk business opportunity to increase their sales and profits. It will provide CMT with a steady stream of cash in terms of leasing fees, and a continuously replenishing source of new sales from those customers with leased equipment who are driven by need to enlarge their manufacturing capacity. The third revenue channel is from Technical Services. The company will provide potential clients with access to its laboratories in the USA and Italy, for the purpose of developing and customizing new processing applications. While some of these services are provided free of charge as part of the marketing efforts, other more comprehensive research and development services will be marketed and offered to clients for fees. The company uses its laboratories and technical staff to continuously improve current systems, and develop next generation systems. Beyond the efforts to sell systems to food manufacturers, the company will market itself and its capabilities through partnerships with engineering design companies, and with manufacturers of complimentary equipment, to provide future clients with "Total Delivered Solutions". CCI is continually seeking to expand its product line by either producing or importing new products. In 2002 CCI will undertake a marketing project to determine if there is a market for Galbani's short shelf life products, such as fresh mozzarella, in the United States. In addition, with a view toward decreasing its dependence on the food service industry, CCI has been studying the packaging of its products to make them consumer friendly for the retail market. A new retail shipper / display for the 3-pack Bel Paese process cheese spread was introduced at the end of 2001. Forward Looking Statements The matters discussed in this Item 2 may contain forward-looking statements that involve risk and uncertainties. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of factors, including without limitation the presence of competitors with broader product lines and greater financial resources; intellectual property rights and litigation, needs of liquidity; and the other risks detailed from time to time in the Company's reports filed with the Securities and Exchange Commission. 11 PART II - OTHER INFORMATION Item 6. Exhibits and reports on Form 8-K (a) Exhibits None (b) Reports filed on Form 8K None 12 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf the undersigned thereunto duly authorized THE CLASSICA GROUP, INC. ------------------------ (Registrant) Date: May 1, 2002 By: /s/ Scott G. Halperin --------------------- Scott G. Halperin Chairman Chief Executive Officer Date: May 1, 2002 By: /s/ Bernard F. Lillis, Jr. -------------------------- Bernard F. Lillis, Jr. Chief Financial Officer Principal Accounting Officer Treasurer 13 -----END PRIVACY-ENHANCED MESSAGE-----