-----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, B+GmAkhtWRkbmIEvKReODulcQ0NMT/bU4enadq0cq3r9hYztCF5FHSJwy8IkxIs8 OfH/5eYxSlNdAFUwCdFEJg== 0000868075-03-000052.txt : 20031119 0000868075-03-000052.hdr.sgml : 20031119 20031119162719 ACCESSION NUMBER: 0000868075-03-000052 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031119 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: 031013214 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 qsbq303.txt FORM 10QSB 9/30/03 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 September 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 of (IRS Employer identification no.) 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 September 30, 2003 Title of Each Class Number of Shares Outstanding Common Stock, $.001 par value per share 8,134,295 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheet (Unaudited) September 30, 2003 ASSETS ----------- Current Assets: Cash $660,664 Accounts receivable 46,574 Inventories 370,257 Prepaid expenses 228,197 ----------- Total current assets 1,305,692 Property and equipment, net 732,062 Intangible assets, net 1,345,351 ----------- TOTAL ASSETS $3,383,105 =========== See notes to the consolidated financial statements (Unaudited). THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheet (Unaudited) (continued) September 30, 2003 LIABILITIES AND STOCKHOLDERS' EQUITY --------------------------------------------------- LIABILITIES --------------- CURRENT LIABILITIES: Accounts payable $ 141,987 Loans payable 325,000 Accrued expenses 73,370 ----------- Total current liabilities 540,357 ----------- TOTAL LIABILITIES 540,357 ----------- 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 8,134,295 issued and outstanding 8,134 Additional paid-in-capital 6,967,818 Accumulated deficit (4,529,340) Accumlated other comprehensive income (1,762) ----------- Total Stockholders' Equity 2,842,748 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,383,105 =========== See notes to the consolidated financial statements (Unaudited). THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income (Unaudited) For the three months For the nine months ended September 30, ended September 30, 2003 2002 2003 2002 ------------------------------------------------ Revenue $ 18,979 $ 21,002 $ 88,580 $ 42,487 Cost of sales 0 0 55,258 0 ------------------------------------------------ Gross profit 18,979 21,002 33,322 42,487 Selling, general and administrative expenses 696,480 343,098 1,717,326 918,169 ------------------------------------------------ Operating loss (677,501) (322,096) (1,684,004) (875,682) Interest expense 10,684 0 19,209 0 ------------------------------------------------ Loss from continuing operations (688,185) (322,096) (1,703,213) (875,682) Income (loss) from discontinued operations 0 7,447 (89,398) 90,829 ------------------------------------------------ Net loss before other comprehensive income (688,185) (314,649) (1,792,611) (784,853) Other comprehensive income: Foreign currency translation, net of tax effect of $-0- 3,890 0 (15,614) 0 ------------------------------------------------ Comprehensive income $ (684,295)$ (314,649)$(1,808,225) $ (784,853) ================================================ EARNINGS PER COMMON SHARE BASIC & DILUTED Loss from continuing operations $ (0.10) $ (0.09) $ (0.30) $ (0.28) Income (loss) from discontinued operations 0.00 0.00 (0.02) 0.03 ------------------------------------------------ Net loss $ (0.10) $ (0.09) $ (0.32) $ (0.25) ================================================ Weighted average shares outstanding, basic and diluted 6,663,934 3,583,778 5,685,369 3,163,274 See notes to the consolidated financial statements (Unaudited). THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2003 and 2002 September 30, 2003 2002 ---------------------------- Cash flows from operating activities: Loss from continuing operations $ (1,703,213) $ (875,682) Income(loss) from discontinued operations (89,398) 90,829 Foreign currency translation (29,466) 0 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 141,413 119,578 (Increase) in accounts receivable (32,141) (7,148) (Increase) in inventories (72,695) (252,039) (Increase) in prepaid expenses and other assets (126,711) (70,172) Increase in accounts payable and accrued expenses 50,791 193,021 ---------------------------- Net cash used in operating activities (1,861,420) (801,613) ---------------------------- Cash flows used in investing activities: Purchase of fixed assets (323,721) 114,762) Decrease (increase) in other assets 123,423 (15,813) Realization of assets relating to discontinued operation 397,441 0 Settlement of liabilities relating to discontinued operation (397,441) 0 ---------------------------- Net cash used in investing activities (200,298) (130,575) ---------------------------- Cash flows from financing activities: Proceeds of loans payable 325,000 0 Collection of receivable from sale of discontinued operation 426,819 0 Proceeds from Issuance of capital stock 1,228,496 1,097,380 ---------------------------- Net cash provided by financing activities 1,980,315 1,097,380 ---------------------------- Net increase (decrease) in cash (81,403) 165,192 Cash at beginning of period 742,067 88,385 ---------------------------- Cash at end of period $ 660,664 $ 253,577 ============================ Supplemental disclosure of cash flows information: Interest paid $ 404 $ 0 ============================ See notes to the consolidated financial statements (Unaudited). 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. Engineer Giuseppe Ruozi, a key developer of the process 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 Engineer Ruozi gives CMT a strong position in the growing field of new and innovative processing technologies for the food industry. CMT expects 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/A Annual Report (as amended September 4, 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 September 30, 2003. THE CLASSICA GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) Note 2 - GOING CONCERN The financial statements have been prepared assuming the Company will continue as a going concern. The Company has a net loss of ($1,792,611) for the nine-month period ended September 30, 2003, and has an accumulated deficit of approximately ($4,529,340) at September 30, 2003. The Company has an on-going need for additional working capital to sustain the operations of its microwave technology segment for the foreseeable future. The Company had intended to raise additional capital through short term and long term borrowings, a private placement or a public offering. Recent events, as more fully discussed below in Footnote #13 to the Unaudited Consolidated Financial Statements, have raised considerable doubt as to the Company's ability to raise additional capital through those sources and, accordingly, have also raised substantial doubt about the Company's ability to continue as a going concern. Note 3 - INVENTORIES Inventories at September 30, 2003 consist of: Raw materials $ 22,738 Construction in progess 290,598 Used machines held for resale 56,921 ------------ Total inventory $370,257 ============ NOTE 4- PREPAID EXPENSES Prepaid expenses at September 30, 2003 consist of: Security deposit $ 100,000 Prepaid taxes (Italy) 75,326 Prepaid loan expense 20,954 Prepaid insurance 17,405 Other prepaid expenses 14,512 ------------ Total prepaid expenses $ 228,197 ============ THE CLASSICA GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) NOTE 5 - ACCRUED EXPENSES Accrued expenses at September 30, 2003 consist of: Accrued payroll $ 50,737 Accrued interest 18,805 Other accrued expenses 3,828 ------------ Total accrued expenses $ 73,370 ============ NOTE 6 -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 September 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 7 - 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 September 30, 2003: Furniture & equipment $ 750,464 Leasehold improvements 98,927 ------------ Total cost 849,391 Less accumulated depreciation and amortization (117,329) ------------ $ 732,062 ============ THE CLASSICA GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) NOTE 8 - 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 September 30, 2003. Intangible assets consist of the following at September 30 2003: Patents $ 1,552,328 Accumulated amortization (206,977) -------------- Intangible assets, net $ 1,345,351 ============== 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 9 - 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 had 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 registration statement was declared effective September 12, 2003. On October 10, 2003 the Company exercised its right to extend the maturity date of the note for a period of 60 days (to December 9, 2003) and released 70,000 shares of the Company's common stock from escrow. In accordance with paragraph 30 of SFAS 128, the 770,000 shares contingently issued and placed in escrow were not included in the calculation of earnings per share at September 30, 2003, as the contingency existed at that time. NOTE 10 - Revenue recognition Revenue is recognized when goods are shipped or in certain situations upon customer acceptance and title has passed. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements", which provides guidance related to revenue recognition. The Company has adopted of SAB 101 and it has not had a material impact on the Company's consolidated financial position or results of operations, nor did it result in the Company reporting a change in accounting principles from its application. THE CLASSICA GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) Note 11 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses consisted of: For the three months For the nine months ended September 30, ended September 30, 2003 2002 2003 2002 ------------------------------------------------ Employee compensation and related expenses $ 283,940 $155,741 $ 864,594 $ 460,797 Depreciation and amortization 70,342 41,058 141,413 119,578 Advertising,trade shows, travel and other selling expenses 17,299 14,752 121,505 62,701 Professional fees and other expenses of being a public company 142,335 56,264 265,569 107,729 Administrative and general expenses 122,665 44,510 178,710 98,136 Insurance 50,132 27,831 80,035 62,773 Moving expenses 0 0 36,200 0 Research and development 9,767 2,942 29,300 6,455 ------------------------------------------------ TOTAL $ 696,480 $343,098 $ 1,717,326 $ 918,169 ================================================ NOTE 12 - 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. Operating results of Cucina Classica Italiana, Inc. for the nine months ended September 30, 2002 are included in income from discontinued operations shown separately in the accompanying financial statements. Revenues of Cucina Classica Italiana, Inc. for the nine months ended September 30, 2002 were $4,717,054. This amount is not included in Revenues in the accompanying financial statements. NOTE 13 - SEGMENT REPORTING Industry segment information at September 30, 2003 and 2002 is summarized as follows: Total Revenue Operating Profits (Loss) 2003 2002 2003 2002 --------------------------------------------------- United States Operations $ 20,468 $ 30,114 $ (1,137,955) $ (395,250) Italian Operations 66,804 0 (203,759) (19,470) --------------------------------------------------- Total Segment 87,272 30,114 (1,341,714) (414,720) Corporate income(expenses) 1,308 12,373 (342,290) (460,962) --------------------------------------------------- Consolidated $ 88,580 $ 42,487 (1,684,004) (875,682) ===================== Interest expense 19,209 0 ------------------------------ Loss from continuing operations $ (1,703,213) $ (875,682) ==============================
Depreciation and Capital Expenditures Amortization Expense Identifiable Assets 2003 2002 2003 2002 2003 2002 --------------------------------------------------------------------------------- U.S. Operations $ 299,245 $ 107,039 $60,396 $47,779 $ 1,497,434 $ 533,738 Italian Operations 24,476 7,723 2,989 1,032 500,362 361,376 Corporate 0 0 78,028 70,767 1,385,309 1,909,409 --------------------------------------------------------------------------------- Consolidated $ 323,721 $ 114,762 $ 141,413 $ 119,578 $ 3,383,105 $ 2,804,523 =================================================================================
THE CLASSICA GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) NOTE 14- SUBSEQUENT EVENTS Change in Company Management - On October 2, 2003, the Company's then Chairman and Chief Executive Officer was arrested and charged with conspiracy to commit securities fraud. In addition, on the same day the Securities and Exchange Commission instituted public administrative and cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against the Executive. As of the date hereof, the Company has no further knowledge regarding the proceedings that have been initiated against this Executive. The Company has not been charged in this matter. The Executive has resigned as Chairman and Chief Executive Officer of Company. Under the terms of his employment agreement the Executive will continue to receive his salary and will be indemnified for his expenses related to this matter as provided by his employment agreement, the Company by-laws and applicable State Corporation Business Law. The Company's Chief Financial Officer has been elected Chairman of the Board and has assumed the additional position of acting Chief Executive Officer. De-listing from Nasdaq SmallCap Market - On October 21, 2003 the Company requested a voluntary de-listing of its common stock from the Nasdaq SmallCap Market, effective prior to market opening on October 23, 2003 The Company took this action because it did not believe that it would be able to satisfy Nasdaq's requirements for continued listing. As a result of the voluntary de-listing, the Company expects that its common stock will be eligible for quotation in the over-the-counter market. The OTC Bulletin Board is a regulated quotation service that displays real-time quotes, last sale prices, and volume information in over-the-counter securities. 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 September 30, 2003 and 2002 Net Revenues. Net revenues for the three months ended September 30, 2003 were $18,979 compared with $ 21,002 for the same period in 2002, a decrease of $2,023, or 9.63%. This includes incidental amounts related to the start-up of our microwave technology subsidiary including consulting fees and testing in our laboratories totaling $17,671 in 2003 and $8,629 in the same period in 2002. Gross Profit. We generated gross operating profits of $18,979 for the three months ended September 30, 2003 versus gross profit of $21,002 for the same period in 2002. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $696,480 for the three months ended September 30, 2003 versus $343,098 for the same period in 2002. This represents an increase of $353,382 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 $ 283,940 $155,741 Depreciation and amortization 70,342 41,058 Advertising,trade shows, travel and other selling expenses 17,299 14,752 Professional fees and other expenses of being a public company 142,335 56,264 Administrative and general expenses 122,665 44,510 Insurance 50,132 27,831 Research and development 9,767 2,942 ------------------------ TOTAL $ 696,480 $343,098 ======================== Loss from Continuing Operations. Loss from continuing operations for the three month period ended September 30, 2003 was $688,185 versus $322,096 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 September 30, 2003 and 2002, as we had net losses for both years. Results of Operations for the Nine Months Ended September 30, 2003 and 2002 Net Revenues. Net revenues for the nine months ended September 30, 2003 were $88,580 compared with $ 42,487 for the same period in 2002, an increase of $46,093, or 108.5%. This increase includes the sale of a reconditioned (used) 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 $43,972 in 2003 and $30,114 in 2002. Gross Profit. We generated a gross profit of $33,322 or 37.6% of net revenues for the nine months ended September 30 2003 versus gross profit of $42,487 for the same period in 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 $1,717,326 for the nine months ended September 30, 2003 versus $918,169 for the same period in 2002. This represents an increase of $799,157 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, New Jersey in February of 2003. SG& A expenses for the period consisted of: 2003 2002 ------------------------ Employee compensation and related expenses $ 864,594 $460,797 Depreciation and amortization 141,413 119,578 Advertising,trade shows, travel and other selling expenses 121,505 62,071 Professional fees and other expenses of being a public company 265,569 107,729 Administrative and general expenses 178,710 98,136 Insurance 80,035 62,773 Moving expenses 36,200 0 Research and development 29,300 6,455 ------------------------ TOTAL $1,717,326 $918,169 ======================== Loss from Continuing Operations. Loss from continuing operations for the nine month period ended September 30, 2003 was $(1,703,213) versus $(875,682) 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 nine month periods ended September 30, 2003 and 2002, as we had net losses for both years. 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 which became effective on September 12, 2003. We used the proceeds from this private placement to fund the growth of our microwave technology business. 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 had 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 registration statement was declared effective September 12, 2003. On October 10, 2003 the Company exercised its right to extend the maturity date of the note for a period of 60 days (to December 9, 2003) and released 70,000 shares of the Company's common stock from escrow. The 770,000 shares contingently issued and placed in escrow were not included in the calculation of earnings per share at September 30, 2003, in accordance with paragraph 30 of SFAS 128, as the contingency existed at that time. On August 19, 2003 the Company entered into an Investment Banking Agreement with Rubin Investment Group, Inc. ("RIG") of Los Angeles, California for a term of one year affective August 19, 2003. As compensation for the services to be performed under this agreement RIG was given an option to purchase one million two hundred thousand (1,200,000) shares of the Company's stock at a purchase price of forty cents ($0.40) per share. RIG exercised the option and the Company received four hundred and eighty thousand dollars ($480,000) in cash as proceeds from this transaction. On August 29, 2003 the Company entered into a Merger and Acquisition Advisor Agreement with Rubin Investment Group, Inc. ("RIG") of Los Angeles, California for a term of one year affective August 29, 2003. As compensation for the services to be performed under this agreement RIG was given an option to purchase six hundred thousand (600,000) shares of the Company's stock at a purchase price of seventy-five cents ($0.75) per share. By amendment to the Agreement the exercise price was reduced to fifty-eight and one-third cents ($0.5833) per share subsequent to RIG's exercise of the option and the Company received three hundred and fifty thousand dollars ($350,000) in cash as proceeds from this transaction. At September 30, 2003, the Company had a net worth of $2,842,748 compared to $2,537,970 at September 30, 2002. The Company has minimal requirements for capital expenditures in the immediate future. The Company utilizes capital leases for the acquisition of operating assets at its subsidiaries when appropriate. At September 30, 2003 the Company had no capital leases. The Company has a net loss of ($1,792,611) for the nine-month period ended September 30, 2003, and has an accumulated deficit of approximately ($4,529,340) at September 30, 2003. The Company has an on-going need for additional working capital to sustain the operations of its microwave technology segment for the foreseeable future. The Company had intended to raise additional capital through short term and long term borrowings, a private placement or a public offering. Recent events, as more fully discussed in Footnote #11 to the Unaudited Consolidated Financial Statements, have raised considerable doubt as to the Company's ability to raise additional capital through these measures and, accordingly, have also raised substantial doubt about the Company's ability to continue as a going concern. Management believes that the Company has sufficient working capital to meet the needs of its current level of operations through the beginning of 2004. Seasonality The Company's business is not subject to the effects of seasonality. 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 three 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. The third system was sold and installed in Italy and has been accepted by the customer and is being paid for by the customer in accordance with the terms of the sale agreement. 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 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. 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 having entered into an exclusive agency agreement covering Canada and British Columbia with a national agency for the sale of food processing machinery located in Mississauga, Canada. 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. We are a member of several 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 volume develops. 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 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." Item 3. Controls and Procedures (a) Evaluation of disclosure controls and procedures. The Company's acting principal executive officer, who is also the Company's principal financial officer, based on his 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, has 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. PART II - OTHER INFORMATION Item 6. Exhibits and reports on Form 8-K (a) Exhibits: 3.1 Articles of Incorporation of Registrant (A). 3.2 Bylaws of Registrant (A). 4.1 1998 Incentive and Non-Qualified Stock Option Plan (E). 4.2 Amendment to 1998 Incentive and Non-Qualified Stock Option Plan (D). 4.3 Form of Warrant dated December 13, 2002 (A). 10.1 Acquisition Agreement between Registrant and OMAC Research, Ltd. (B). 10.2 Lease Agreement between CGTI Classica Group Technologies, Italia S.r.l. and PRAGMATA, S.r.l., dated December 15, 2001 (C). 10.3 Lease Agreement between First Industrial Development Services, Inc. and Classica Microwave Technologies, Inc. dated November 13, 2002(F). 10.4 Placement Agent Agreement (A). 10.5 Securities Purchase Agreement (A). 10.6 Registration Rights Agreement (A). 10.7 Employment Agreement with Scott G. Halperin (I). 10.8 Employment Agreement with Bernard F. Lillis (I). 10.9 Employment Agreement with Joseph Riemer, Ph.D., (G). 10.10 Amendment to Employment Agreement with Scott G. Halperin (G). 10.11 Amendment to Employment Agreement with Bernard F. Lillis (G). 10.12 Agreement with Giuseppe Ruozi (G). 10.13 Securities Purchase Agreement, dated June 10, 2003 (H). 10.14 Pledge and Security Agreement dated June 10, 2003 (H). 10.15 Secured Promissory Note dated June 10, 2003 (H). 10.16 First Amendment to Pledge and Security Agreement dated June 23, 2003 (H). 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. Certain of the foregoing documents are incorporated by reference from the Registrant's filings indicated: (A) Registration Statement on Form SB-2, filed with the Securities and Exchange Commission on January 22, 2003. (B) Form 8-K, filed with the Securities and Exchange Commission on April 17, 2001. (C) Form 10-KSB, filed with the Securities and Exchange Commission on April 1, 2002. (D) Registration Statement on Form S-8 filed with the Securities and Exchange Commission on September 18, 2002. (E) Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 12, 2002. (F) Form 10-KSB filed with the Securities and Exchange Commission on April 12, 2003. (G) Form 10-KSB/A filed with the Securities and Exchange Commission on May 19, 2003. (H) Registration Statement on Form SB2/A, filed with the Securities and Exchange Commission on June 24, 2003. (I) Form 10-KSB, filed with the Securities and Exchange Commission on March 12, 1998. (b) Reports on Form 8-K: On September 12, 2003, we filed a current report on Form 8-K regarding an Investment Banking Agreement with Rubin Investment Group, Inc. On September 12, 2003, we filed a current report on Form 8-K regarding a Merger and Acquisition Advisor Agreement with Rubin Investment Group, Inc. On October 14, 2003, we filed a current report on Form 8-K regarding certain press releases issued by the Company on October 8, 9 and 10, 2003 relating to the resignation of the Company's Chairman and Chief Executive Officer. On October 22, 2003 we filed a current report on Form 8-K regarding a press release reporting the Company's intent to voluntarily de-list its common stock from the Nasdaq SmallCap Market. SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized THE CLASSICA GROUP, INC. (Registrant) Date: November 19, 2003 By: /s/ Bernard F. Lillis, Jr. --------------------------- Bernard F. Lillis, Jr. Acting Chief Executive Officer Chief Financial Officer EX-31 3 ex31-1.txt CERTIFICATION OF BERNARD F. LILLIS, JR. EXHIBIT 31.1 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 on my knowledge, this report does not contain any untrue statement of a 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 report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the period presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: November 19, 2003 /s/ Bernard F. Lillis, Jr. Bernard F. Lillis, Jr. Acting Chief Executive Officer Chief Financial Officer EX-32 4 ex99-1.txt CERTIFICATION OF BERNARD F. LILLIS, JR. EXHIBIT 32.1 CERTIFICATION In connection with the Quarterly Report of The Classica Group, Inc. (the "Company") on Form 10-QSB for the period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bernard F. Lillis, Jr., Acting Chief Executive Officer of the Company, and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of 13(a) or 15(d) of the Securities and Exchange Act of 1934; (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Bernard F. Lillis, Jr. Bernard F. Lillis, Jr. Acting Chief Executive Officer Chief Financial Officer November 19, 2003 -----END PRIVACY-ENHANCED MESSAGE-----