U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[x]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 of (IRS Employer identification no.)
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 May 9, 2000
Title of Each Class Number of Shares Outstanding
Common Stock, $.001 par value per share 1,267,833
<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)
March 31, 2000
ASSETS
Current Assets:
Cash and cash equivalents $255,074
Accounts receivable-net of allowance for
doubtful accounts of $63,140 697,494
Inventories 538,273
Prepaid expenses and other current assets 173,117
-----------
Total current assets 1,663,958
Fixed Assets - net 2,667,425
Other assets 544,150
Intangible assets - net 1,034,288
-----------
TOTAL ASSETS $5,909,821
===========
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)
March 31, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses $1,962,690
Current portion of long-term debt 125,342
Current portion of capital lease obligations 76,470
------------
Total current liabilities 2,164,502
Long-term debt 729,687
Capital lease obligations 236,614
------------
Total liabilities 3,130,803
------------
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 1,232
Par value $.001 - 25,000,000 shares authorized,
1,231,833 shares issued and outstanding
Additional paid-in-capital 853,017
Retained Earnings 1,526,871
-----------
Total Stockholders' Equity 2,779,018
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,909,821
===========
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 March 31, 2000 and 1999
March 31,
2000 1999
------------------------------
Net sales $ 2,622,062 $ 2,762,182
Cost of sales 2,031,100 1,940,595
------------------------------
Gross profit 590,962 821,587
Selling, general and administrative expenses 670,158 618,478
Loss on abandoned operation - 52,866
------------------------------
(Loss) income from operations (79,196) 150,243
Interest expense - net 69,255 63,145
------------------------------
(Loss) income before taxes (148,451) 87,098
Income tax provision 4,400 8,500
------------------------------
Net (loss) income ($152,851) $ 78,598
==============================
EARNINGS PER COMMON SHARE
BASIC & DILUTED
Net (loss) income ($0.13) $0.08
==============================
Basic weighted average shares used in computation 1,155,295 1,009,333
Diluted weighted average shares used in computation 1,155,295 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 Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2000 and 1999
March 31,
2000 1999
----------------------------
Cash Flows from operating activities:
Net (loss) income $ (152,851) $ 78,598
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 130,541 117,908
Provision for losses on accounts receivable 17,008 9,000
Decrease (increase)in accounts receivable 111,684 (45,035)
Decrease in inventories 119,143 492
Decrease (increase) in prepaid expenses
and other assets 78,766 (98,874)
Decrease in accounts payable and
accrued expenses (246,299) (35,279)
----------------------------
Net cash provided by operating activities 57,992 26,810
----------------------------
Cash flows from investing activities:
Purchase of fixed assets (65,321) (54,353)
Increase in intangible assets (1,150) 0
----------------------------
Net cash provided by (used in) investing
activities (66,471) (54,353)
----------------------------
Cash flows from financing activities:
Proceeds of long-term debt 0 200,000
Repayment of long-term debt (73,055) (243,356)
Issuance of capital stock-private placement 300,000 0
Issuance of capital stock-exercise of options 28,126 0
Proceeds of capital leases 0 200,000
Repayment of capital leases (18,068) (14,151)
----------------------------
Net cash provided by financing activities 237,003 142,493
----------------------------
Net increase in cash and cash equivalents 228,524 114,950
Cash and cash equivalents at beginning of period 26,550 108,357
----------------------------
Cash and cash equivalents at end of period $ 255,074 $ 223,307
============================
Supplemental disclosure of cash flow information:
Interest paid $ 70,627 $ 59,753
============================
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)
(CONTINUED)
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 March 31, 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. 675,149 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>
NOTE 3 --FIXED ASSETS
Fixed assets consists of the following at March 31, 2000:
Useful Life
-------------
Land $611,007
Buildings 894,402 38.5 years
Furniture & equipment 1,214,270 5 - 10 years
Vehicles 544,503 5 - 7 years
Leasehold improvements 46,667 5 years
Equipment held for sale 10,000
Capital Leases 460,732
-----------
Total Cost 3,781,581
Less accumulated
depreciation and amortization (1,114,156)
-----------
Fixed assets - net $2,667,425
===========
NOTE 4 -- LONG-TERM DEBT
Long-term debt consists of the following at March 31, 2000:
Term Loan - payable in installments
through 2000. Interest at prime plus 1%.
Secured by accounts receivable,
inventories and fixed assets $ 17,700
Term loan - payable $37,500 annually through 2002,
With a balloon payment in 2003. Interest at 8%.
Secured by building. 693,750
Note payable - payable in monthly installments
of $4,837. Interest at 9.865%.
Secured by certain vehicles 120,579
Note payable, unsecured - payable in monthly
installments of $9,375.
Interest at prime plus 1%. 18,750
Other 4,250
----------
Subtotal 855,029
Less current maturities 125,342
----------
Long -term debt $729,687
==========
7
<PAGE>
Maturities of Long Term Debt are as follows:
2000 $ 104,612
2001 89,509
2002 70,283
2003 590,625
----------
$ 855,029
==========
Note 5 -- SEGMENT REPORTING
Industry segment information at March 31, 2000 is summarized as
follows:
Total Operating
Revenues Profit(Loss)
------------- --------------
CCI $ 1,851,062 $ 214,846
Deli 698,877 (230,528)
CMT - (12,500)
------------- --------------
Total Segment 2,549,939 (28,182)
Eliminations and other
corporate income(expenses) 72,123 (51,014)
------------- --------------
Consolidated $ 2,622,062 (79,196)
=============
Interest expense 69,255
--------------
Loss before income taxes $ (148,451)
==============
Depreciation
Capital and Amortization Identifiable
Expenditures Expense Assets
----------------------------------------------------
CCI $ 11,515 $ 57,041 $1,799,411
Deli 29,829 66,000 3,164,260
CMT 23,977 - 23,977
Corporate - 7,500 922,173
====================================================
Consolidated $ 65,321 $ 130,541 $5,909,821
====================================================
8
<PAGE>
Note 6 - RECENT SALE OF UNREGISTERED SECURITIES
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.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis contains forward-looking
statements, which involve risk and uncertainties. When used herein, the words
"anticipated," "believe," "estimate," and "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward-looking statements which the meaning of the Private Securities
Litigation Reform Act of 1995. The Company's actual results, performance or
achievements could differ materially from the results expressed or implied by
these forward-looking statements.
Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the Consolidated Unaudited
Financial Statements and related notes, which are contained herein.
Results of Operations for the Three Months Ended March 31, 2000 and 1999
Net sales for the three months ended March 31, 2000 were $2,622,062
compared with $2,762,182 in 1999, a decrease of $140,120 or 5.1%. This decrease
is the result of a reduction in sales of $77,844 or 10.0% at the Company's Deli
King subsidiary, and $111,388 or 5.7% 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 has
taken steps to move its operation. The move is on schedule to be completed by
the end of the second quarter. Management believes that this move will improve
the profitability of the mobile catering business by substantially increasing
its revenues resulting from sales to additional caterers at a more favorable
location. The decrease in revenues at CCI was primarily the result of a
delay in the sale of imported cheese products due to the timing of the Easter
and Passover holidays in 2000. The shortfall should be made up in the second
quarter.
The Company generated gross profit of $590,962 or 22.5% of net sales in
2000, vs. $821,587 or 29.7% of net sales in 1999. The decrease in gross profit
margin was the result of a reduction in gross profit of $117,464 or 69.9% 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
$468,252 or 25.3% of net sales in 2000 compared to $630,522 or 32.1% of net
sales in 1999, a decrease of $162,270. CCI's gross profit in the quarter
decreased primarily as the result of the lower import sales in the period
causing the product mix to skew toward the lower margin domestic products.
Selling, general and administrative expenses were $670,158 and $618,478
in 2000 and 1999, respectively. This represents an increase of $27,516 or 1.1%
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.
10
<PAGE>
The Company generated a net loss of $152,851 for the three months ended
March 31, 2000 versus income of $78,598 for the same period in 1999. This
represents a reduction of $231,449. Deli King's results from operations for 2000
were a loss of $(247,271) compared to a loss of $(137,250) in 1999. CCI's
results from operations for 2000 were $157,934 compared to $309,233 in 1999.
Interest expense was $69,225 and $63,145 for the three-months ended
March 31, 2000 and 1999, respectively. The increase is the result of capital
leases, which were entered into after the first quarter of 1999.
The Company reported no provision for Federal income taxes for the
three month periods ended March 31, 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
$4,400 and $8,500 for the three-month periods ended March 31, 2000 and 1999,
respectively.
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 and the issuance of equity
securities.
At March 31, 2000, the Company had a net worth of $2,779,018 compared
with $3,806,065 at March 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.
Deli King owns real estate with a market value of approximately
$1,450,000 against which there exists a mortgage in the amount of $693,750 at
March 31, 2000. Additionally, Deli King has a loan collateralized by its fleet
of trucks in the amount of $120,579 at March 31, 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 March 31, 2000, the Company has
capital leases with an unamortized balance of $313,084.
Management believes that the Company has sufficient working capital to
meet the needs of its current level of operations.
11
<PAGE>
Seasonality
The Company's businesses are subject to the effects of seasonality.
Consequently, the operating results for the quarter ended March 31, 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 early June 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.
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.
12
<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
13
<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: May 12, 2000 By: /s/ Scott G. Halperin
---------------------
Scott G. Halperin
Chairman
Chief Executive Officer
Date: May 12, 2000 By: /s/ Bernard F. Lillis, Jr.
--------------------------
Bernard F. Lillis, Jr.
Chief Financial Officer
Principal Accounting Officer
Treasurer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This shedule contains summary financial information extracted from Consolidated
Audited Financial Statements contained in Form 10KSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 255,074
<SECURITIES> 0
<RECEIVABLES> 760,634
<ALLOWANCES> (63,140)
<INVENTORY> 538,273
<CURRENT-ASSETS> 1,663,958
<PP&E> 3,781,581
<DEPRECIATION> (1,114,156)
<TOTAL-ASSETS> 5,909,821
<CURRENT-LIABILITIES> 2,164,502
<BONDS> 0
0
397,898
<COMMON> 1,232
<OTHER-SE> 2,379,888
<TOTAL-LIABILITY-AND-EQUITY> 5,909,821
<SALES> 2,622,062
<TOTAL-REVENUES> 2,622,062
<CGS> 2,031,100
<TOTAL-COSTS> 670,158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17,008
<INTEREST-EXPENSE> 69,255
<INCOME-PRETAX> (148,451)
<INCOME-TAX> 4,400
<INCOME-CONTINUING> (152,851)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (152,851)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
