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, 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.
(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 November 14, 2000:
Title of Each Class Number of Shares Outstanding
Common Stock, $.001 par value per share 1,511,119
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
September 30, 2000
ASSETS
Current Assets:
Cash and cash equivalents $234,328
Accounts receivable-net of allowance for doubtful accounts
of $95,413 1,240,420
Inventories 530,107
Prepaid expenses and other current assets 146,369
-------------
Total current assets 2,151,224
Fixed Assets - net 2,665,041
Other assets 74,308
Intangible assets - net 948,654
-------------
TOTAL ASSETS $5,839,227
=============
See notes to the consolidated financial statements (Unaudited).
2
<PAGE>
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited) (continued)
September 30, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses $1,784,249
Current portion of long-term debt 89,997
Current portion of capital lease obligations 76,825
-------------
Total current liabilities 1,951,071
Long-term debt 683,768
Capital lease obligations 188,362
-------------
Total liabilities 2,823,201
-------------
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 1,511
Par value $.001 - 25,000,000 shares authorized, 1,511,119 shares
issued and outstanding
Additional paid-in-capital 1,504,387
Retained Earnings 1,112,230
-------------
Total Stockholders' Equity 3,016,026
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,839,227
=============
See notes to the consolidated financial statements (Unaudited).
3
<PAGE>
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
-----------------------------------------------
Net sales $2,704,249 $3,142,161 $8,332,260 $9,157,156
Cost of sales 2,130,424 2,210,066 6,523,347 6,441,192
-----------------------------------------------
Gross profit 573,825 932,095 1,808,913 2,715,964
Selling, general and
administrative expenses 754,186 716,387 2,165,881 2,106,636
Loss on abandoned operation 0 0 0 52,866
-----------------------------------------------
(Loss) income from operations (180,361) 215,708 (356,968) 556,462
Interest expense - net 69,051 77,652 202,224 217,867
-----------------------------------------------
(Loss) income before taxes (249,412) 138,056 (559,192) 338,595
Income tax provision 21,600 8,300 38,600 0
-----------------------------------------------
Net (loss) income ($249,412) $116,456 ($567,492) $299,995
===============================================
EARNINGS PER COMMON SHARE
BASIC & DILUTED
Net (loss) income ($0.19) $0.12 ($0.45) $0.30
Basic weighted average shares
used in computation 1,309,988 1,009,333 1,257,756 1,009,333
Diluted weighted average shares
used in computation 1,309,988 1,009,333 1,257,756 1,009,333
See notes to the consolidated financial statements (Unaudited).
4
<PAGE>
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2000 and 1999
September 30,
2000 1999
------------------------
Cash Flows from operating activities:
Net (loss) income $ (567,492) $ 299,995
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 393,333 354,369
Provision for losses on accounts receivable 49,281 27,000
(Increase)in accounts receivable (463,515) (356,180)
Decrease (increase) in inventories 127,309 (53,057)
(Increase) in prepaid expenses and other assets (1,622) (176,231)
Decrease in other assets 576,978 0
Increase (decrease) in accounts payable and
accrued expenses (424,740) 428,523
------------------------
Net cash (used in) provided by operating activities (310,468) 524,419
------------------------
Cash flows from investing activities:
Purchase of fixed assets (241,245) (405,653)
------------------------
Net cash used in investing activities (241,245) (405,653)
------------------------
Cash flows from financing activities:
Proceeds of long-term debt 200,000
Repayment of long-term debt (154,319) (612,336)
Issuance of capital stock-private placement 300,000 0
Issuance of capital stock-exercise of options 679,775 0
Proceeds of capital leases 0 371,235
Repayment of capital leases (65,965) (71,750)
------------------------
Net cash provided by (used in) financing activities 759,491 (112,851)
------------------------
Net increase in cash and cash equivalents 207,778 5,915
Cash and cash equivalents at beginning of period 26,550 108,357
------------------------
Cash and cash equivalents at end of period $ 234,328 $ 114,272
========================
Supplemental disclosure of cash flows information:
Interest paid $ 198,957 $ 212,367
========================
See notes to the consolidated financial statements (Unaudited).
5
<PAGE>
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 --ORGANIZATION AND BASIS OF PRESENTATION
The Classica Group, 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
September 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 3 -- SEGMENT REPORTING
Industry segment information at September 30, 2000 is summarized as
follows:
Total Operating
Revenues Profit(Loss)
------------------ --------------
CCI $ 6,334,535 $ 699,477
Deli 1,924,387 (660,825)
CMT 0 (50,330)
------------------ --------------
Total Segment 8,258,922 (11,678)
Eliminations and other
corporate income(expenses) 73,338 (345,290)
------------------ --------------
Consolidated $ 8,332,260 (356,968)
==================
Interest expense 202,224
--------------
Income before income taxes $ (559,192)
==============
Depreciation
Capital and Amortization Identifiable
Expenditures Expense Assets
----------------------------------------------------
CCI $ 34,925 $ 172,003 $2,009,520
Deli 167,343 198,091 3,088,493
CMT 34,000 - 34,000
Corporate 4,977 23,239 707,214
====================================================
Consolidated $ 241,245 $ 393,333 $5,839,227
====================================================
Note 4 - 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.
7
<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 September 30, 2000 and 1999
Net sales for the three months ended September 30, 2000 were $2,704,249,
compared with $3,142,161 in 1999, a decrease of $437,912 or 13.9%. 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 was 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 by the end of the year. In addition, the
Company implemented an aggressive pricing policy in the second half of the year
to generate volume for its imported products.
The Company generated gross profit of $573,825 or 21.1% of net sales in
2000, vs. $932,095 or 29.7% of net sales in 1999. The decrease in gross profit
margin at Deli King was the result of a substantial portion of their costs being
fixed in the face of severely declining sales. 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 $754,186 and $716,387 in
2000 and 1999, respectively. This represents a decrease of $37,779 or 5.3 % of
net sales.
Interest expense was $69,051 and $77,652 for the three months ended
September 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 September 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
$-0- and $21,600 for the three-month periods ended September 30, 2000 and 1999,
respectively.
8
<PAGE>
Net Loss for the three months ended September 30, 2000 was ($249,412)
versus income of $116,456 in 1999, a reduction in income of $365,868. This
included a loss of $305,190 at DKI, and certain start-up expenses at CMT.
Results of Operations for the Nine Months Ended September 30, 2000 and 1999
Net sales for the nine months ended September 30, 2000 were $
8,332,260, compared with $9,157,156 in 1999, a decrease of $824,896 or 9.0%.
This decrease is the result of a reduction in sales of $546,938 at the Company's
Deli King subsidiary, and $277,958 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 was at the end of 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 $1,808,913 or 21.7% of net sales
in 2000, vs. $2,715,964 or 29.7% of net sales in 1999. Duplications in operating
costs and other fixed operating expenses at Deli King, Inc. during construction
caused excessive operating costs during this period.
Selling, general and administrative expenses were $2,165,881 and
$2,106,636 in 2000 and 1999, respectively. This represents an increase of
$59,245 or 0.9% 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 $202,224 and $217,867 for the nine months ended
September 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
nine-month periods ended September 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 $38,600 for the nine-month periods ended September 30, 2000
and 1999, respectively.
Net Loss for the nine months ended September 30, 2000 was ($567,492) versus
income of $299,995 in 1999. This represents a decrease in income of $867,487.
9
<PAGE>
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 September 30, 2000, the Company had a net worth of $3,016,026 compared
with $4,027,461 at September 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.
Deli King owns real estate with a market value of approximately $1,400,000
against which there exists a mortgage in the amount of $675,000 at September 30,
2000. Additionally, Deli King has a loan collateralized by its fleet of trucks
in the amount of $97,015 at September 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 September 30, 2000, the Company has
capital leases with an unamortized balance of $265,187.
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 September 30, 2000 are
not necessarily indicative of results to be expected for the entire year.
10
<PAGE>
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 2001. 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.
11
<PAGE>
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.
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.
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: November 15, 2000 By: /s/ Scott G. Halperin
---------------------
Scott G. Halperin
Chairman
Chief Executive Officer
Date: November 15, 2000 By: /s/ Bernard F. Lillis, Jr.
--------------------------
Bernard F. Lillis, Jr.
Chief Financial Officer
Principal Accounting Officer
Treasurer
14
