10QSB 1 tcgiq203.txt JUNE 30, 2003 QUARTERLY REPORT 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 June 30, 2003 [ ]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) 2400 Main Street, Suite #12, Sayreville, New Jersey 08872 (Address of principal executive offices) (732) 727-7800 (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 June 30, 2003 Title of Each Class Number of Shares Outstanding Common Stock, $.001 par value per share 5,650,067 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheet (Unaudited) June 30, 2003 ASSETS ---------- Current Assets: Cash ............................................. $ 280,640 Accounts receivable .............................. 38,876 Inventories ...................................... 359,654 Prepaid expenses ................................. 219,799 ---------- Total current assets ........................ 898,969 Property and equipment, net ............................... 770,554 Intangible assets, net .................................... 1,371,223 Other assets .............................................. 101,595 ---------- TOTAL ASSETS ................................... $3,142,341 ========== See notes to the consolidated financial statements (Unaudited). 2 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheet (Unaudited) (continued) June 30, 2003 LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ LIABILITIES ----------- CURRENT LIABILITIES: Accounts payable .................................. $ 208,704 Loans payable ..................................... 325,000 Accrued expenses .................................. 90,090 ----------- Total current liabilities ....................... 623,794 ----------- TOTAL LIABILITIES ......................................... 623,794 ----------- 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, shares 5,650,067 issued and outstanding ............................. 5,650 Additional paid-in-capital ................................. 5,975,658 Accumulated deficit ........................................ (3,841,155) Accumlated other comprehensive income ...................... (19,504) ---------- Total Stockholders' Equity ......................... 2,518,547 ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $ 3,142,341 =========== See notes to the consolidated financial statements (Unaudited). 3 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income (Unaudited)
For the three months ended For the six months ended June 30, June 30, 2003 2002 2003 2002 --------------------------------------------------------------- Revenue $ 63,865 $ 17,124 $ 69,601 $ 21,485 Cost of sales 36,670 0 55,258 0 ----------------------------------------------------------------- Gross profit 27,195 17,124 14,343 21,485 Selling, general and administrative expenses 500,026 312,449 1,020,846 575,071 ----------------------------------------------------------------- Operating loss (472,831) (295,325) (1,006,503) (553,586) Interest expense 8,525 0 8,525 0 ----------------------------------------------------------------- Loss from continuing operations (481,356) (295,325) (1,015,028) (553,586) Income (loss) from discontinued operations 0 (20,277) (89,398) 83,382 ----------------------------------------------------------------- Net loss before other comprehensive income (481,356) (315,602) (1,104,426) (470,204) Other comprehensive income: Foreign currency translation, net of tax effect of $0 (20,597) 0 (19,504) 0 ----------------------------------------------------------------- Comprehensive income $ (501,953) $ (315,602) $ (1,123,930) $ (470,204) ================================================================= EARNINGS PER COMMON SHARE BASIC & DILUTED Loss from continuing operations $ (0.09) $ (0.09) $ (0.20) $ (0.19) Income (loss) from discontinued operations - (0.01) (0.02) 0.03 ------------------------------------------------------------------------------------------------------------------------- Net loss $ (0.09) $ (0.10) $ (0.22) $ (0.16) ================================================================= Weighted average shares outstanding, basic and diluted 5,223,239 3,150,900 5,187,976 2,949,538
See notes to the consolidated financial statements (Unaudited). 4 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended June 30, 2003 and 2002 June 30, 2003 2002 --------------------------- Cash flows from operating activities: Loss from continuing operations $ (1,015,028) $ (553,586) Income(loss) from discontinued operations (89,398) 83,382 Foreign currency translation (33,356) - Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 71,071 78,520 (Increase) decrease in accounts receivable (24,444) (30,808) Decrease in receivable from sale of discontinued operation 426,819 - (Increase) decrease in inventories (62,092) (87,687) (Increase) in prepaid expenses and other assets (118,312) 5,878 Increase in accounts payable ---------------------------- and accrued expenses 134,228 49,239 ---------------------------- Net cash used in operating activities (710,512) (455,062) Cash flows used in investing activities: ---------------------------- Purchase of fixed assets (317,743) (120,275) Decrease (increase) in other assets 21,828 (9,753) Increase in net assets of discontinued operations (76,497) Realization of assets relating to discontinued operation 397,441 - Settlement of liabilities relating to discontinued operation (397,441) - ------------------------- Net cash used in investing activities (295,915) (206,525) ------------------------- Cash flows from financing activities: Proceeds of loans payable 325,000 0 Proceeds from Issuance of capital stock 220,000 712,980 ------------------------- Net cash provided by financing activities 545,000 712,980 ------------------------- Net increase (decrease) in cash (461,427) 51,393 Cash at beginning of period 742,067 88,385 ------------------------- Cash at end of period $ 280,640 $ 139,778 ========================= Supplemental disclosure of cash flows information: Interest paid $ - $ - ========================= See notes to the consolidated financial statements (Unaudited). 5 THE CLASSICA GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 --ORGANIZATION AND BASIS OF PRESENTATION The Classica Group, Inc. ("The Company") and its wholly owned subsidiaries Classica Microwave Technologies, Inc. (United States) and CGTI Classica Group Technologies Italia, S.r.l. ("Classica Italy") (collectively "CMT") provide safe food solutions through its automated microwave processing systems. In addition, CMT's technologically advanced design of post packaging processing extends refrigerated shelf life through pasteurization and permits non-refrigerated shelf life through sterilization without the use of any chemical additives. The system is designed to promote food safety while reducing overall operating costs, inventory storage and delivery costs without sacrificing productivity or food quality. Professor Giuseppe Ruozi, the key developer of the process and one of the leading European experts in the field of microwave technology as it applies to the food industry is under a consulting contract with CMT as its Chief Technology Officer. The use of microwave technology in concert with proprietary knowledge acquired over years of research and development by Professor Ruozi gives CMT a strong position in the growing field of new and innovative processing technologies for the food industry. CMT anticipates to generate revenues in two different areas. First, the company sells microwave based processing systems for pasteurization, sterilization, sanitizing and drying of food products. This will also include a secondary market for repair and replacement parts and maintenance services. Second, the company intends to utilize its microwave application expertise to provide development services to new and existing clients. This second area will generate consulting fees, laboratory testing and laboratory rental fees. In October 2002, the Company sold its grated, shredded and dry cheese processing and distributing business, and in December 2002, the Company sold its Galbani(R) brand cheese and meat importing and distribution business, and discontinued the operation of its Cucina Classica Italiana, Inc. subsidiary. 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, 2002 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 (as amended August 12, 2003) for the year ended December 31, 2002. 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 June 30, 2003. 6 THE CLASSICA GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) NOTE 2 -PER SHARE DATA Earnings per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. There were outstanding at June 30, 2003 1,610,689 employee stock options and 479,333 warrants with average purchase prices of $1.1497 and $1.6554 per share, respectively. These options and warrants could potentially dilute basic earnings per share in the future should the Company achieve profitability. Diluted earnings per share do not reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares or resulted in the issuance of common shares as the impact of such would be antidilutive given the net losses incurred. Additionally, 770,000 shares contingently issued and placed in escrow in June, 2003 will not be included in the calculation of earnings per share while the contingency exists in accordance with paragraph 30 of SFAS 128. 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 furniture and equipment and the lease term for leasehold improvements). Property and equipment consists of the following at June 30, 2003: Furniture and equipment $ 744,486 Leasehold improvements 98,927 ---------------- Total cost 843,413 Less accumulated depreciation and amortization (72,859) ---------------- $ 770,554 ================ 7 THE CLASSICA GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) NOTE 4 - Intangible Assets Patents, recorded at cost, are amortized over their estimated useful lives, approximating 15 years. Intangible assets are reviewed for impairment whenever events or circumstances indicate impairment might exist or at least annually. The Company assesses the recoverability of its assets in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets," 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. The Company determined that there is no impairment of the assets at June 30, 2003. Intangible assets consist of the following at June 30 2003: Patents $ 1,552,328 Accumulated amortization (181,105) -------------- Intangible assets, net $ 1,371,223 ============== For the years ending December 31, 2003 through 2007 the patents will be amortized at the rate of $103,489 per annum for a total amortization for the five year period of $517,245. NOTE 5 - Loan Payable On June 10, 2003 the Company executed a promissory note and security agreement and received a loan in the principal amount of $325,000 for a term of four (4) months maturing on October 10, 2003. The loan bears interest at the rate of 16% per annum, which will accrue and be payable at the maturity date together with the principal. The note is secured by a pledge of 770,000 shares of the Company's common stock which are being held in escrow by the lenders' attorney. The Company has the right to extend the maturity date of the note for a period of sixty (60) days upon payment of an extension fee of 70,000 fully registered shares, provided, that as a condition to any such extension the SEC shall have declared the registration statement relating to such shares and the shares collateralizing the note effective. The 770,000 shares contingently issued and placed in escrow will not be included in the calculation of earnings per share while the contingency exists in accordance with paragraph 30 of SFAS 128. NOTE 6 - Discontinued Operations On October 18, 2002, the Company sold assets comprised of manufacturing equipment, certain inventory and related packaging materials and supplies, customer lists, goodwill, trademark and rights to its lease of the distribution facility and other rights relating to the grated, shredded and dry cheese processing and distributing business of its Cucina Classica Italiana, Inc. subsidiary. On December 30, 2002, the Company sold assets comprised of a customer list, goodwill, right to use a license and distribution agreement with a supplier, certain inventory and related packaging materials and supplies a portfolio of import licenses for dairy products, and an assumption of a liability to its distributor relating to the Galbani(R) brand cheese and meat importing and distribution business of its Cucina Classica Italiana, Inc. subsidiary and discontinued the operations of that subsidiary effective December 31, 2002. 8 Operating results of Cucina Classica Italiana, Inc. for the six months ended June 30, 2002 are included in income from discontinued operations shown separately in the accompanying financial statements. Revenues of Cucina Classica Italiana, Inc. for the six months ended June 30, 2002 were $3,230,717. This amount is not included in Revenues in the accompanying financial statements. Note 7 -- SEGMENT REPORTING Industry segment information at June 30, 2003 and 2002 is summarized as follows: Total Revenue Operating Profits (Loss) ------------------------ ------------------------- 2003 2002 2003 2002 ------------------------ ------------------------- United States Operations $ 12,067 $ 7,110 $ (754,108) $ (277,221) Italian Operations 57,534 (115,942) - ------------------------ ------------------------- Total Segment 69,601 7,110 (870,050) (277,221) Corporate income(expenses) - 14,375 (136,453) (276,365) ------------------------ ------------------------- Consolidated $ 69,601 $ 21,485 (1,006,503) (553,586) ======================== Interest expense 8,525 - ------------------------- Loss from continuing operations $(1,015,028) $ (553,586) =========================
Depreciation and Capital Expenditures Amortization Expense Identifiable Assets 2003 2002 2003 2002 2003 2002 ------------------------------------------------------------------------------- U.S. Operations $ 297,526 $ 2,282 $21,617 $25,938 $ 1,038,170 $ 15,880 Italian Operations 20,217 117,993 2,276 - 487,546 301,742 Corporate - - 47,178 52,582 1,616,625 2,036,205 Discontinued Op. - - 734,822 ------------------------------------------------------------------------------- Consolidated $ 317,743 $ 120,275 $71,071 $78,520 $ 3,142,341 $ 3,088,649 ===============================================================================
9 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 June 30, 2003 and 2002 Net Revenues. Net revenues for the three months ended June 30, 2003 were $ 63,865 compared with $ 17,124 in 2002, an increase of $46,741, or 273.0%. This increase includes the sale of a reconditioned system of approximately $43,300 in the three month period ended June 30, 2003 and other incidental amounts related to the start-up of our microwave technology subsidiary including consulting fees and testing in our laboratories totaling $20,565 in 2003 and $17,124 in the same period in 2002. Gross Profit. We generated gross operating profits of $27,195 or 42.6% of net revenues for 2003 versus gross profit of $17,124 or for 2002. This increase is the result of the sale of the reconditioned system during the three month period ended June 30, 2003. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $500,026 in 2003 versus $312,449 for 2002. This represents an increase of $187,577, substantially all of which represents start-up costs of our microwave technology subsidiary. SG& A expenses for the period consisted of: 2003 2002 Employee compensation and related expenses $ 285,371 $164,534 Depreciation and amortization 26,996 40,034 Advertising,trade shows, travel and other selling expenses 45,246 28,400 Professional fees and other expenses of being a public company 91,859 20,184 Administrative and general expenses 32,807 35,002 Insurance 6,424 21,217 Research and development 11,323 3,078 ------------- ------------ TOTAL $ 500,026 $312,449 ============= ============ Loss from Continuing Operations. Loss from continuing operations for the three month period ended June 30, 2003 was $481,356 versus $295,325 for the same period in 2002. These amounts represent start-up costs of our microwave technologies subsidiary. Income Taxes. We reported no provision for Federal income taxes for the three month periods ended June 30, 2003 and 2002, as we had net losses for both years. 10 Results of Operations for the Six Months Ended June 30, 2003 and 2002 Net Revenues. Net revenues for the six months ended June 30, 2003 were $ 69,601 compared with $ 21,485 in 2002, an increase of $48,116, or 224.0%. This increase includes the sale of a reconditioned system of approximately $43,300, and other incidental amounts related to the start-up of our microwave technology subsidiary including consulting fees and fees for testing in our laboratories totaling $26,301 in 2003 and $21,485 in 2002. Gross Profit. We generated a gross profit of $14,343 or 20.6% of net revenues for 2003 versus gross profit of $21,485 for 2002. This decrease is insignificant as the cost of sales amounts reported in 2003 represent certain fixed manufacturing- related expenses of our Italian operation as well as the direct costs related to the testing services performed. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $1,020,846 in 2003 versus $575,071 for 2002. This represents an increase of $445,775 substantially all of which represents start-up costs of our microwave technology subsidiary. There were non-recurring moving and start-up expenses of approximately $36,200 that were incurred during the first quarter of 2003 relating to the move from Lakewood to Sayreville in February of 2003. SG& A expenses for the period consisted of: Six month period ended June 30, 2003 2002 -------------------------------------------------------------------------------- Employee compensation and related expenses $ 580,654 $305,056 Depreciation and amortization 71,071 78,520 Advertising,trade shows, travel and other selling expenses 104,206 47,949 Professional fees and other expenses of being a public company 123,234 51,465 Administrative and general expenses 56,045 53,626 Insurance 29,903 34,942 Moving expenses 36,200 - Research and development 19,533 3,513 -------------- ------------- TOTAL $1,020,846 $575,071 ============== ============= Loss from Continuing Operations. Loss from continuing operations for the six month period ended June 30, 2003 was $(1,015,028) versus $(553,586) for the same period in 2002. These amounts represent start-up costs of our microwave technologies subsidiary. Income Taxes. We reported no provision for Federal income taxes for the six month periods ended June 30, 2003 and 2002, as we had net losses for both years. 11 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. On December 13, 2002, we completed a private placement of 1,030,000 shares of our common stock and 200,000 shares issuable upon the exercise of warrants, from which we received gross proceeds of $1,030,000. The warrants are dated December 13, 2002 and expire on December 12, 2005. The exercise price is $1.00 per share. The shares of common stock issued in the transaction and those issuable upon exercise of the warrants are subject to a registration rights agreement. In accordance therewith, we filed a registration statement on Form SB-2 with the Securities and Exchange Commission on January 22, 2003. We are using the proceeds from this private placement to fund the growth of our microwave technology business. At June 30, 2003, the Company had a net worth of $2,518,547 compared to $2,468,219 at June 30, 2002. The Company has limited requirements for capital expenditures in the immediate future, except for the start-up of the CMT subsidiary for which the Company may undertake an additional private placement. The Company utilizes capital leases for the acquisition of operating assets at its subsidiaries when appropriate. At June 30, 2003 the Company had no capital leases. 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 not subject to the effects of seasonality. 12 Plan of Operation More than 200 installations of microwave heat processing systems and technology have been undertaken in Europe and Japan. All but two of those installations were undertaken by OMAC, the Company from which we purchased the technology, patents and laboratory in Italy, and other entities. We have only delivered two systems, one of which is in Switzerland, and was rented for an initial period of five months, which has been extended by the customer. The second system was installed in Italy on a contingent basis subject to the customer's acceptance. After the completion of the installation the customer elected not to accept the machine, and to continue using its previous technology, which we feel is inferior to the new system. The system has been returned to our inventory for modification and sale to a new customer. Our systems and the technology are not well known outside Europe and Japan. Our plan is to continue to promote and market our systems in Europe and Japan, and to penetrate other markets. Our goal is to generate revenues from the sale of microwave heat processing systems and the sale of technical services. In order to facilitate sales of our microwave systems, we have undertaken a major campaign of communications and education among future users, governmental regulatory agencies and food industry professionals. We are seeking to introduce our company, our systems, and the benefits of our systems to potential users, so that we can obtain a high level of recognition and acceptance of our systems. Up until the recent introduction of CMT's patented technology the common perception among food manufacturers in the US was that the food applications of microwave heat processing technology are very limited due to the uneven heating offered by existing microwave equipment manufactures (e.g. Amana or Cryodry). In the US commercial installations of microwave heat processing systems were successful only for defrosting of frozen meat blocks and for the cooking of bacon - two applications where non-uniformity of temperature is acceptable. In order to introduce its technology in the United States CMT had to overcome this common perception by providing food technologists, process engineers, Quality Assurance specialists and other food industry professionals with the evidence of the technology's features, advantages and benefits as demonstrated by its earlier successful European track record of almost 200 industrial installations. Through the education campaign, which has so far included the mailing of more than 7,500 brochures, presentations at the meetings of various trade organizations, and attendance at several trade shows and international conferences, CMT achieved the attention of the Research & Development and Operations departments of leading US food manufacturers. The professionals in those organizations followed up with visits and tests at CMT's laboratory in New Jersey, and based upon their positive feedback within their companies, CMT is currently involved in applications development projects for top Fortune 100 companies. 13 Simultaneously with the communications and education campaign, we have begun to use both a direct sales force and an independent agent with regional offices and representation throughout the United States. In addition, we have relationships with a network of agents worldwide who will identify market and sell our equipment to customers. In developing our network of agents to sell our equipment in the United States we have entered into an Agreement of Representation with a national agency for the sale of food processing machinery, with headquarters in California for the sale of our microwave heat processing equipment to the food industry, using their network of regional sales agents throughout the United States. In addition, we have entered into exclusive agency agreements with two European companies, one located in Zurich, Switzerland covering Switzerland, Germany, Austria, and Lichtenstein, and for France with a well known agency for the sale of food processing machinery headquartered in Argenteuil, France. We are currently negotiating with a national agency for the sale of food processing machinery located in Mississauga, Canada an exclusive agency agreement covering Canada and British Columbia. Additional international agencies are being identified and contacted Following our participation at the Anuga FoodTec trade show in Germany in April of 2003 we were contacted two companies from Japan and Thailand requesting to become our agent in their respective countries. We have begun working together with these companies exploring leads in their territories and expect to decide by early 2004 if either one of these two companies should become our exclusive agent in their designated territories In addition to selling our microwave systems, we intend to provide technical services to customers. We have two laboratories, one at our Sayreville, New Jersey location, and one in our Italy location. Our Sayreville location is also equipped with a full commercial kitchen. We have provided potential clients with access to our laboratories in the USA and Italy so that we can work with them to develop and customize new microwave heat processing applications. Some of the technical services are, and will continue to be, provided free of charge as part of our marketing efforts. Other more comprehensive research and development services are marketed and will be offered to customers for fees. We hope to market our company and our capabilities to food and pharmaceutical manufacturers through many means, including through partnerships with engineering and design companies, and with manufacturers of complementary equipment. We believe that such partnerships would be beneficial to both our company and to our potential partner by enabling us to avoid duplication of marketing, and research and development costs, and by expanding the field of potential customers to whom our products would become known. 14 We are a member of ten relevant trade associations through which we promote recognition of microwave technology in general and of our unique systems in particular. Members of our staff have made presentations at various trade association meetings and seminars to acquaint the members with our unique systems. At the present time the design and construction of systems is carried out in Italy by our subsidiary CGTI and third parties. We are evaluating additional manufacturing capabilities in the USA, so as to be prepared for domestic construction of our systems as our sales volumes increase. 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 2 distinct sources: >> Sales 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. 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. The second 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". 15 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. 16 Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. The Company's principal executive officer and its principal financial officer, based on their evaluation of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c)) as of a date within 90 days prior to the filing of this Quarterly Report on Form 10-QSB, have concluded that the Company's disclosure controls and procedures are adequate and effective for the purposes set forth in the definition in Exchange Act rules.. (b) Changes in internal controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the date of their evaluation. 17 PART II - OTHER INFORMATION Item 6. Exhibits and reports on Form 8-K (a) Exhibits: (99.1) Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002. Filed herewith. (99.2) Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002. Filed herewith. (b) Reports on Form 8-K: ITEM 2. ACQUISITION OR DISPOSAL OF ASSETS Related to the sale of the Company's cheese business. ITEM 5. OTHER EVENTS Related to the December 13, 2002 private placement for $ 1,030,000. 18 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: August 19, 2003 By: /s/ Scott G. Halperin ------------------------------ Scott G. Halperin Chairman Chief Executive Officer Date: August 19, 2003 By: /s/ Bernard F. Lillis, Jr. ----------------------------------- Bernard F. Lillis, Jr. Chief Financial Officer Chief Administrative Officer Treasurer 19 THE CLASSICA GROUP, INC. CERTIFICATION PURSUANT TO RULE 13-A-14 OF THE SECURITIES ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Scott G. Halperin, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of The Classica Group, Inc.; 2. Based upon my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure the material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based upon our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal control; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there are significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 19, 2003 /s/ Scott G. Halperin Scott G. Halperin Chief Executive Officer 20 THE CLASSICA GROUP, INC. CERTIFICATION PURSUANT TO RULE 13-A-14 OF THE SECURITIES ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Bernard F. Lillis, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-QSB of The Classica Group, Inc.; 2. Based upon my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure the material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based upon our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal control; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there are significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 19, 2003 /s/ Bernard F. Lillis, Jr. -------------------------- Bernard F. Lillis, Jr. Chief Financial Officer 21