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, 2000
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
Commission file number 0-19721
THE CLASSICA GROUP, INC.
(Formerly Saratoga Brands 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 August 14, 2000
Title of Each Class Number of Shares Outstanding
Common Stock, $.001 par value per share 1,269,833
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SARATOGA BRANDS INC. AND SUBSIDIARIES)
Consolidated Balance Sheet (Unaudited)
June 30, 2000
ASSETS
Current Assets:
Cash and cash equivalents $209,055
Accounts receivable-net of allowance for doubtful accounts
of $79,398 729,325
Inventories 584,446
Prepaid expenses and other current assets 228,662
----------------
Total current assets 1,751,488
Fixed Assets - net 2,617,235
Other assets 211,093
Intangible assets - net 991,470
----------------
TOTAL ASSETS $5,571,286
================
See notes to the consolidated financial statements (Unaudited).
2
<PAGE>
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SARATOGA BRANDS INC. AND SUBSIDIARIES)
Consolidated Balance Sheet (Unaudited) (continued)
June 30, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses $1,816,493
Current portion of long-term debt 92,677
Current portion of capital lease obligations 76,825
-----------------
Total current liabilities 1,985,995
Long-term debt 706,301
Capital lease obligations 217,702
-----------------
Total liabilities 2,909,998
-----------------
STOCKHOLDERS' EQUITY
Preferred stock 397,898
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.
Common stock 1,270
Par value $.001 - 25,000,000 shares authorized, 1,269,833 shares
issued and outstanding
Additional paid-in-capital 900,478
Retained Earnings 1,361,642
-----------------
Total Stockholders' Equity 2,661,288
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,571,286
=================
See notes to the consolidated financial statements (Unaudited).
3
<PAGE>
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SARATOGA BRANDS INC. AND SUBSIDIARIES)
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------------------------------------------------------
Net sales $ 3,005,949 $ 3,252,813 $ 5,628,011 $ 6,014,995
Cost of sales 2,361,823 2,290,531 4,392,923 4,231,126
--------------------------------------------------------
Gross profit 644,126 962,282 1,235,088 1,783,869
Selling, general and
administrative expenses 741,537 771,771 1,411,695 1,390,249
Loss on abandoned operation - - - 52,866
--------------------------------------------------------
(Loss) income from
operations (97,411) 190,511 (176,607) 340,754
Interest expense - net 63,918 77,070 133,173 140,215
--------------------------------------------------------
(Loss) income before taxes (161,329) 113,441 (309,780) 200,539
Income tax provision 3,900 8,500 8,300 17,000
--------------------------------------------------------
Net (loss) income ($165,229) $ 104,941 ($318,080) $ 183,539
========================================================
EARNINGS PER COMMON SHARE
BASIC & DILUTED
Net (loss) income ($0.13) $0.10 ($0.26) $0.18
========================================================
Basic weighted average
shares used in computation1,259,811 1,009,333 1,207,553 1,009,333
Diluted weighted average shares
used in computation 1,259,811 1,009,333 1,207,553 1,009,333
See notes to the consolidated financial statements (Unaudited).
4
<PAGE>
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SARATOGA BRANDS INC. AND SUBSIDIARIES)
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2000 and 1999
June 30,
2000 1999
-------------------------
Cash Flows from operating activities:
Net (loss) income $ (318,080) $ 183,539
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 261,901 235,936
Provision for losses on accounts receivable 33,266 18,000
Decrease (increase)in accounts receivable 63,595 (115,118)
Decrease (increase) in inventories 72,970 (110,232)
Decrease (increase) in prepaid expenses
and other assets 32,638 (75,934)
Increase (decrease) in accounts payable
and accrued expenses (70,104) 138,998
-------------------------
Net cash provided by operating activities 76,186 275,189
-------------------------
Cash flows from investing activities:
Purchase of fixed assets (103,575) (236,001)
-------------------------
Net cash (used in) investing activities (103,575) (236,001)
Cash flows from financing activities:
Proceeds of long-term debt 0 200,000
Repayment of long-term debt (129,106) (374,076)
Issuance of capital stock-private placement 300,000 0
Issuance of capital stock-exercise of options 75,625 0
Proceeds of capital leases 0 220,985
Repayment of capital leases (36,625) (36,734)
-------------------------
Net cash provided by financing activities 209,894 10,175
-------------------------
Net increase in cash and cash equivalents 182,505 49,363
Cash and cash equivalents at beginning of period 26,550 108,357
-------------------------
Cash and cash equivalents at end of period $ 209,055 $ 157,720
Supplemental disclosure of cash flows information:
Interest paid $ 134,833 $ 147,175
=========================
See notes to the consolidated financial statements (Unaudited).
5
<PAGE>
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SARATOGA BRANDS INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 --ORGANIZATION AND BASIS OF PRESENTATION
The Classica Group, Inc. (formerly Saratoga Brands, Inc.) (The
"Company") through its subsidiaries is a national distributor of specialty
cheeses and operates a food processor, distributor and mobile catering business
servicing Rhode Island, eastern Connecticut and southeastern Massachusetts. In
the first quarter of 2000 the Company formed Classica Microwave Technologies,
Inc. ("CMT"), which will provide an innovative microwave based food-processing
system to improve the bacterial integrity of food products as well as extend the
shelf life of food products.
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, 1999, 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 results of operations, the financial position 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, 1999.
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, 2000.
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. The
financial statements reflect share amounts after having given effect to a
reverse stock split of 1:5, which became effective October 6, 1999.
6
<PAGE>
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
(FORMERLY SARATOGA BRANDS INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE 3 -FIXED ASSETS
Fixed assets consists of the following at June 30, 2000:
Useful Life
Land $611,007
Buildings 894,402 37.5 years
Furniture & equipment 1,262,626 5 - 10 years
Vehicles 534,501 5 - 7 years
Leasehold improvements 46,667 5 years
Equipment held for sale 10,000
Capital Leases 460,732
-------------
Total Cost 3,819,935
Less accumulated depreciation and amortization (1,202,700)
-------------
Fixed assets - net $2,617,235
=============
NOTE 4 -- LONG-TERM DEBT
Long-term debt consists of the following at June 30, 2000:
Mortgage - payable $37,500 annually through 2002,
With a balloon payment in 2003.
Interest at 8%. Secured by building. $684,375
Note payable - payable in monthly installments of $4,837
Interest at 9.865%. Secured by certain vehicles 112,853
Other 1,750
----------
Subtotal 798,978
Less Current Maturities 92,677
----------
Long -term debt $706,301
==========
7
<PAGE>
Maturities of Long Term Debt are as follows:
2000 $ 48,561
2001 89,509
2002 70,283
2003 590,625
-------------------
$ 798,978
===================
Note 5 -- SEGMENT REPORTING
Industry segment information at June 30, 2000 is summarized as follows:
Total Operating
Revenues Profit(Loss)
------------------ --------------
CCI $ 4,197,863 $ 443,651
Deli 1,391,628 (380,959)
CMT - (32,664)
------------------ --------------
Total Segment 5,589,491 30,028
Eliminations and other
corporate income(expenses) 38,520 (206,635)
------------------ --------------
Consolidated $ 5,628,011 (176,607)
==================
Interest expense 133,173
--------------
Income before income taxes $ (309,780)
==============
8
<PAGE>
Depreciation
Capital and Amortization Identifiable
Expenditures Expense Assets
-----------------------------------------------------
CCI $ 26,243 $ 114,486 $1,976,649
Deli 38,455 132,000 3,082,444
CMT 34,000 - 34,000
Corporate 4,977 15,415 478,193
=====================================================
Consolidated $ 103,675 $ 261,901 $5,571,286
=====================================================
Note 6 - PRIVATE PLACEMENT
On February 1, 2000, the Company issued 200,000 shares of common stock in a
private placement for which it received net proceeds of $300,000.
9
<PAGE>
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, 2000 and 1999
Net sales for the three months ended June 30, 2000 were $ 3,005,949,
compared with $3,252,813 in 1999, a decrease of $246,864 or 7.6%. This decrease
is the result of a reduction in sales of $179,635 or 28.3% at the Company's Deli
King subsidiary, and $34,593 or 1.5% at CCI. The reduction in net sales at the
Deli King subsidiary resulted from the loss of a significant number of
independent caterers who left to move to a commissary with a location closer to
the area serviced by their routes. In the first quarter of 2000 Deli King took
steps to move its operation. The move is on schedule to be completed in
September 2000. Management believes that this move will improve the
profitability of the mobile catering business by substantially increasing its
revenues as the result regaining some or all of the business lost and gaining
new business from caterers operating in the area of the new facility. The
decrease in revenues at CCI was primarily the result of the decline in sales to
one of our customers who services a specialized segment of the food service
industry. This decline is expected to be temporary and to reverse near the end
of the third quarter. In addition, the Company implemented an aggressive pricing
policy in the second quarter to generate volume for its imported products.
The Company generated gross profit of $644,146 or 21.4% of net sales in
2000, vs. $962,282 or 29.6% of net sales in 1999. The decrease in gross profit
margin was the result of a reduction in gross profit of $95,904 or 38.1% at the
Deli King subsidiary. Deli King's gross margin decreased because a substantial
portion of their cost of sales are fixed costs. CCI's gross profit decreased to
$522,057 or 22.2% of net sales in 2000 compared to $711,673 or 29.9% of net
sales in 1999, a decrease of $189,616. CCI's gross profit in the quarter
decreased primarily as the result of the loss of some high-margin sales, and an
aggressive pricing policy undertaken in order to generate sales volume.
Selling, general and administrative expenses were $741,537 and $771,771
in 2000 and 1999, respectively. This represents a decrease of $30,234 or 1.0%
of net sales.
10
<PAGE>
Interest expense was $63,918 and $77,070 for the three months ended
June 30, 2000 and 1999 respectively. The decrease is the result of the repayment
of long-term debt and capital leases resulting in less interest being due.
The Company reported no provision for Federal income taxes for the
three month periods ended June 30, 2000 and 1999, as the Company had a net loss
for 2000 and taxable operating earnings were offset by net operating loss carry
forwards in 1999. The Company reported a provision for state income taxes of
$3,900 and $8,500 for the three-month periods ended June 30, 2000 and 1999,
respectively.
Net Loss for the three months ended June 30, 2000 was ($165,229) versus
income of $104,941 in 1999, a reduction in income of $270,170. This included a
reduction in income of $220,502 at DKI, and the recognition of an unrealized
loss of $ 33,915 on an investment held as collateral for an obligation owed to
one of CCI vendors.
Results of Operations for the Six Months Ended June 30, 2000 and 1999
Net sales for the six months ended June 30, 2000 were $ 5,628,011,
compared with $6,014,995 in 1999, a decrease of $386,984 or 6.9%. This decrease
is the result of a reduction in sales of $257,479 or 15.6% at the Company's Deli
King subsidiary, and $145,981 or 3.4% at CCI. The reduction in net sales at the
Deli King subsidiary resulted from the loss of a significant number of
independent caterers who left to move to a commissary with a location closer to
the area serviced by their routes. In the first quarter of 2000 Deli King took
steps to move its operation. The move is on schedule to be completed in
September 2000. Management believes that this move will improve the
profitability of the mobile catering business by substantially increasing its
revenues as the result regaining some or all of the business lost and gaining
new business from caterers operating in the area of the new facility. The
decrease in revenues at CCI was primarily the result of the decline in sales to
one of their customers who services a specialized segment of the food service
industry. This decline is expected to be temporary and to reverse near the end
of the third quarter. In addition, the Company implemented an aggressive pricing
policy in the second quarter to generate volume for its imported products.
The Company generated gross profit of $1,235,088 or 21.9% of net sales
in 2000, vs. $1,783,869 or 29.7% of net sales in 1999. The decrease in gross
profit margin was the result of a reduction in gross profit of $213,371 or 50.9%
at the Deli King subsidiary. Deli King's gross margin decreased because a
substantial portion of their cost of sales are fixed costs. CCI's gross profit
decreased to $990,309 or 23.6% of net sales in 2000 compared to $1,342,195 or
30.9% of net sales in 1999, a decrease of $351,886. CCI's gross profit in the
six-month period decreased primarily as the result of the loss of some
high-margin sales and an aggressive pricing policy undertaken in order to
generate sales volume.
11
<PAGE>
Selling, general and administrative expenses were $1,411,695 and
$1,390,249 in 2000 and 1999, respectively. This represents an increase of
$21,446 or 0.4% of net sales. This increase is the result of increased costs at
the Deli King subsidiary resulting from an attempt to increase wholesale
business as a result of the loss of caterers due to our undesirable location,
and costs related to our new CMT division.
Interest expense was $133,173 and $140,215 for the six months ended
June 30, 2000 and 1999 respectively. The decrease is the result of the scheduled
repayment of long-term debt and capital lease obligations.
The Company reported no provision for Federal income taxes for the
three-month periods ended June 30, 2000 and 1999, as the Company had a net loss
for 2000 and taxable operating earnings were offset by net operating loss carry
forwards in 1999. The Company reported a provision for state income taxes of
$8,300 and $17,000 for the six-month periods ended June 30, 2000 and 1999,
respectively.
Net Loss for the six months ended June 30, 2000 was ($318,080) versus
income of $183,539 in 1999. This represents a decrease in income of $501,619.
Deli King's results from operations for 2000 were a loss of $(407,217) compared
to a loss of $(84,466) in 1999. CCI's results from operations for 2000 were
income of $329,126 compared to $470,217 in 1999. Net corporate expense for the
quarter was $239,299 for 2000 as compared to $202,212. Current year expenses
included certain start-up expenses for CMT and certain expenses related to the
move at DKI.
Liquidity and Capital Resources
In addition to cash generated by operations, the Company's sources of
capital include, but are not limited to, the issuance of public or private debt,
bank borrowings and the issuance of equity securities.
At June 30, 2000, the Company had a net worth of $2,661,288 compared
with $3,911,006 at June 30, 1999. In addition to operating losses, the reduction
in net worth reflects a $705,000 write-down in the value of long-lived assets
taken at December 31, 1999.
The Company has limited requirements for capital expenditures in the
immediate future, except for the costs related to moving the Deli King operation
to its new facility, and the start-up of the new CMT division. To that end, on
February 1, 2000, the Company issued 200,000 shares of its common stock in a
private placement, for which it yielded net proceeds of $300,000.
CCI's factoring arrangement with GMAC Commercial Credit, LLC has
adequate availability to provide working capital to support sales growth in that
division.
12
<PAGE>
Deli King owns real estate with a market value of approximately
$1,400,000 against which there exists a mortgage in the amount of $684,375 at
June 30, 2000. Additionally, Deli King has a loan collateralized by its fleet of
trucks in the amount of $112,853 at June 30, 2000. Except for a capital lease on
two of its computers all other Deli King assets are owned free and clear, and
provide adequate collateral to support borrowing for working capital needs in
that subsidiary.
The Company utilizes capital leases for the acquisition of operating
assets at the subsidiaries when appropriate. At June 30, 2000, the Company has
capital leases with an unamortized balance of $294,527.
Management believes that the Company has sufficient working capital to
meet the needs of its current level of operations.
Seasonality
The Company's businesses are subject to the effects of seasonality.
Consequently, the operating results for the quarter ended June 30, 2000 are not
necessarily indicative of results to be expected for the entire year.
Anticipated Future Growth
New Business - Classica Microware Technologies, Inc.
Classica Microwave Technologies, Inc. ("CMT") is currently testing
microwave-processing systems for use in food processing. CMT is anticipating the
delivery of its first laboratory system in the Fall of 2000. This system will
have the ability to develop and test food products for companies looking to
ensure the bacterial integrity of their products. In addition, CMT's engineer
has been successful in designing a microwave system capable of drying various
food products. CMT anticipates installing a second laboratory system utilizing
this drying process.
These systems will provide longer refrigerated and non-refrigerated
shelf life without dependency on additives or preservatives of any kind. The
Company will also have the ability to develop new products for the expansion of
the product lines of its other companies.
CMT expects to have several revenue sources including; the development
of food products having bacterial integrity and extended refrigerated and
non-refrigerated shelf life, the sale of systems to food processors concerned
about the bacterial integrity of their products, and strategic joint ventures
for product development and sales with existing food processors.
13
<PAGE>
Management believes that the future growth of the Company will be the
result of five efforts; (1) the operations of the Company's new Classica
Microwave Technologies, Inc. subsidiary (2) acquisition of other companies in
the food and food related industries, (3) increasing sales to existing customers
by offering new products and product lines, (4) obtaining new customers in the
existing markets and developing new markets via current marketing channels and
the internet, and (5) controlling and containing production, operating and
administrative costs.
Effects of Recently Issued Accounting Standards
During 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities," which is effective for periods beginning after June 15,
1999. During 1999, the FASB delayed the effective date for one year to fiscal
years beginning after June 15, 2000. It is anticipated that the adoption of this
statement will not affect the Company's financial position or results of
operations.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." This SAB provides guidance on the recognition, presentation and
disclosure of revenue, and will be implemented by the Company in the quarter
ending December 31, 2000. The Company continues to study the SAB, however, it is
anticipated that its adoption will not affect the Company's financial position
or results of operations.
14
<PAGE>
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.
15
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On February 1, 2000, the Company sold 200,000 unregistered shares of
the Company's common stock. The shares were sold to several accredited investors
at $1.50 per share. Total net proceeds were $300,000 for which no commission or
broker fee was paid.
The Company intended that the shares be exempt from registration under
the Securities Act by virtue of Section 4(2) and/or Section 4(6) of the
Securities Act and the provisions of Regulation D promulgated thereunder.
Under the terms of the subscription agreement the Company is required
to file a registration statement with the Securities and Exchange Commission to
register for resale under the Securities Act the shares of Common Stock within
120 days of the closing.
Proceeds from the above private placement are being used to relocate
the mobile catering business.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
None
(b) Reports filed on Form 8K
None
16
<PAGE>
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 21, 2000 By: /s/ Scott G. Halperin
---------------------
Scott G. Halperin
Chairman
Chief Executive Officer
Date: August 21, 2000 By: /s/ Bernard F. Lillis, Jr.
--------------------------
Bernard F. Lillis, Jr.
Chief Financial Officer
Principal Accounting Officer
Treasurer
17
