U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
[x]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
Commission file number 0-19721
THE CLASSICA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3413467
(State or other jurisdiction (IRS Employer identification no.)
of incorporation or organization)
2400 Main Street, Suite #12, Sayreville, New Jersey 08872
(Address of principal executive offices)
(732) 727-7800
(Issuer's telephone number)
---------------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ...X.. No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d)of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes .......No .......
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares outstanding of each of the issuer's classes of common
equity as of June 30, 2003
Title of Each Class Number of Shares Outstanding
Common Stock, $.001 par value per share 5,650,067
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
June 30, 2003
ASSETS
----------
Current Assets:
Cash ............................................. $ 280,640
Accounts receivable .............................. 38,876
Inventories ...................................... 359,654
Prepaid expenses ................................. 219,799
----------
Total current assets ........................ 898,969
Property and equipment, net ............................... 770,554
Intangible assets, net .................................... 1,371,223
Other assets .............................................. 101,595
----------
TOTAL ASSETS ................................... $3,142,341
==========
See notes to the consolidated financial statements (Unaudited).
2
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited) (continued)
June 30, 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
-----------
CURRENT LIABILITIES:
Accounts payable .................................. $ 208,704
Loans payable ..................................... 325,000
Accrued expenses .................................. 90,090
-----------
Total current liabilities ....................... 623,794
-----------
TOTAL LIABILITIES ......................................... 623,794
-----------
STOCKHOLDERS' EQUITY
-----------
Preferred stock
Class A participating convertible preferred
shares, $1 par value, stated at liquidation value,
authorized 200 shares of which 16.5 shares are
issued and outstanding ............................. 397,898
Common stock
Par value $.001 - 25,000,000 shares authorized, shares 5,650,067
issued and outstanding ............................. 5,650
Additional paid-in-capital ................................. 5,975,658
Accumulated deficit ........................................ (3,841,155)
Accumlated other comprehensive income ...................... (19,504)
----------
Total Stockholders' Equity ......................... 2,518,547
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $ 3,142,341
===========
See notes to the consolidated financial statements (Unaudited).
3
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
<table>
<caption>
For the three months ended For the six months ended
June 30, June 30,
2003 2002 2003 2002
---------------------------------------------------------------
<s> <c> <c> <c> <c>
Revenue $ 63,865 $ 17,124 $ 69,601 $ 21,485
Cost of sales 36,670 0 55,258 0
-----------------------------------------------------------------
Gross profit 27,195 17,124 14,343 21,485
Selling, general and administrative expenses 500,026 312,449 1,020,846 575,071
-----------------------------------------------------------------
Operating loss (472,831) (295,325) (1,006,503) (553,586)
Interest expense 8,525 0 8,525 0
-----------------------------------------------------------------
Loss from continuing operations (481,356) (295,325) (1,015,028) (553,586)
Income (loss) from discontinued operations 0 (20,277) (89,398) 83,382
-----------------------------------------------------------------
Net loss before other comprehensive income (481,356) (315,602) (1,104,426) (470,204)
Other comprehensive income:
Foreign currency translation, net of tax effect of $0 (20,597) 0 (19,504) 0
-----------------------------------------------------------------
Comprehensive income $ (501,953) $ (315,602) $ (1,123,930) $ (470,204)
=================================================================
EARNINGS PER COMMON SHARE
BASIC & DILUTED
Loss from continuing operations $ (0.09) $ (0.09) $ (0.20) $ (0.19)
Income (loss) from discontinued operations - (0.01) (0.02) 0.03
- -------------------------------------------------------------------------------------------------------------------------
Net loss $ (0.09) $ (0.10) $ (0.22) $ (0.16)
=================================================================
Weighted average shares outstanding, basic and diluted 5,223,239 3,150,900 5,187,976 2,949,538
</table>
See notes to the consolidated financial statements (Unaudited).
4
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2003 and 2002
June 30,
2003 2002
---------------------------
Cash flows from operating activities:
Loss from continuing operations $ (1,015,028) $ (553,586)
Income(loss) from discontinued operations (89,398) 83,382
Foreign currency translation (33,356) -
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 71,071 78,520
(Increase) decrease in accounts receivable (24,444) (30,808)
Decrease in receivable from sale of
discontinued operation 426,819 -
(Increase) decrease in inventories (62,092) (87,687)
(Increase) in prepaid expenses and other assets (118,312) 5,878
Increase in accounts payable
----------------------------
and accrued expenses 134,228 49,239
----------------------------
Net cash used in operating activities (710,512) (455,062)
Cash flows used in investing activities:
----------------------------
Purchase of fixed assets (317,743) (120,275)
Decrease (increase) in other assets 21,828 (9,753)
Increase in net assets of discontinued operations (76,497)
Realization of assets relating to discontinued
operation 397,441 -
Settlement of liabilities relating to
discontinued operation (397,441) -
-------------------------
Net cash used in investing activities (295,915) (206,525)
-------------------------
Cash flows from financing activities:
Proceeds of loans payable 325,000 0
Proceeds from Issuance of capital stock 220,000 712,980
-------------------------
Net cash provided by financing activities 545,000 712,980
-------------------------
Net increase (decrease) in cash (461,427) 51,393
Cash at beginning of period 742,067 88,385
-------------------------
Cash at end of period $ 280,640 $ 139,778
=========================
Supplemental disclosure of cash flows information:
Interest paid $ - $ -
=========================
See notes to the consolidated financial statements (Unaudited).
5
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 --ORGANIZATION AND BASIS OF PRESENTATION
The Classica Group, Inc. ("The Company") and its wholly owned
subsidiaries Classica Microwave Technologies, Inc. (United States) and CGTI
Classica Group Technologies Italia, S.r.l. ("Classica Italy") (collectively
"CMT") provide safe food solutions through its automated microwave processing
systems. In addition, CMT's technologically advanced design of post packaging
processing extends refrigerated shelf life through pasteurization and permits
non-refrigerated shelf life through sterilization without the use of any
chemical additives. The system is designed to promote food safety while reducing
overall operating costs, inventory storage and delivery costs without
sacrificing productivity or food quality. Professor Giuseppe Ruozi, 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 Professor Ruozi
gives CMT a strong position in the growing field of new and innovative
processing technologies for the food industry.
CMT anticipates to generate revenues in two different areas. First,
the company sells microwave based processing systems for pasteurization,
sterilization, sanitizing and drying of food products. This will also include a
secondary market for repair and replacement parts and maintenance services.
Second, the company intends to utilize its microwave application expertise to
provide development services to new and existing clients. This second area will
generate consulting fees, laboratory testing and laboratory rental fees.
In October 2002, the Company sold certain assets of its grated,
shredded and dry cheese processing and distributing business, and in December
2002, the Company sold certain assets of its Galbani(R) brand cheese and meat
importing and distribution business, and discontinued the operation of its
Cucina Classica Italiana, Inc. subsidiary.
The unaudited consolidated financial statements included herein have
been prepared by the Company in accordance with the same accounting principles
followed in the presentation of the Company's annual financial statements for
the year ended December 31, 2002 pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments that are of a normal and recurring nature and are necessary to
fairly present the financial position, results of operations, and cash flows of
the Company have been made on a consistent basis. This report should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB Annual Report (as amended 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 June 30, 2003.
6
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
NOTE 2 -PER SHARE DATA
Earnings per common share is computed by dividing net income (loss)
available to common shareholders by the weighted-average number of common
shares outstanding during the period. There were outstanding at June 30, 2003
1,610,689 employee stock options and 479,333 warrants with average purchase
prices of $1.1497 and $1.6554 per share, respectively. These options and
warrants could potentially dilute basic earnings per share in the future
should the Company achieve profitability. Diluted earnings per share do not
reflect the potential dilution that could occur if securities or other
contracts to issue common shares were exercised or converted into common
shares or resulted in the issuance of common shares as the impact of such
would be antidilutive given the net losses incurred. Additionally, 770,000
shares contingently issued and placed in escrow in June, 2003 will not be
included in the calculation of earnings per share while the contingency
exists in accordance with paragraph 30 of SFAS 128.
NOTE 3 - Property and equipment
Property and equipment are carried at cost, less accumulated
depreciation and amortization computed on a straight-line basis over the lesser
of the estimated useful lives of the assets (generally three to ten years for
furniture and equipment and the lease term for leasehold improvements).
Property and equipment consists of the following at June 30, 2003:
Furniture and equipment $ 744,486
Leasehold improvements 98,927
----------------
Total cost 843,413
Less accumulated depreciation and amortization (72,859)
----------------
$ 770,554
================
7
THE CLASSICA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
NOTE 4 - Intangible Assets
Patents, recorded at cost, are amortized over their estimated useful
lives, approximating 15 years. Intangible assets are reviewed for impairment
whenever events or circumstances indicate impairment might exist or at least
annually. The Company assesses the recoverability of its assets in accordance
with SFAS No. 142 "Goodwill and Other Intangible Assets," comparing projected
undiscounted cash flows associated with those assets against their respective
carrying amounts. Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets. The Company determined that there is
no impairment of the assets at June 30, 2003.
Intangible assets consist of the following at June 30 2003:
Patents $ 1,552,328
Accumulated amortization (181,105)
--------------
Intangible assets, net $ 1,371,223
==============
For the years ending December 31, 2003 through 2007 the patents will be
amortized at the rate of $103,489 per annum for a total amortization for the
five year period of $517,245.
NOTE 5 - Loan Payable
On June 10, 2003 the Company executed a promissory note and
security agreement and received a loan in the principal amount of $325,000 for a
term of four (4) months maturing on October 10, 2003. The loan bears interest at
the rate of 16% per annum, which will accrue and be payable at the maturity date
together with the principal. The note is secured by a pledge of 770,000 shares
of the Company's common stock which are being held in escrow by the lenders'
attorney. The Company has the right to extend the maturity date of the note for
a period of sixty (60) days upon payment of an extension fee of 70,000 fully
registered shares, provided, that as a condition to any such extension the SEC
shall have declared the registration statement relating to such shares and the
shares collateralizing the note effective. The 770,000 shares contingently
issued and placed in escrow will not be included in the calculation of earnings
per share while the contingency exists in accordance with paragraph 30 of SFAS
128.
NOTE 6 - Discontinued Operations
On October 18, 2002, the Company sold assets comprised of manufacturing
equipment, certain inventory and related packaging materials and supplies,
customer lists, goodwill, trademark and rights to its lease of the distribution
facility and other rights relating to the grated, shredded and dry cheese
processing and distributing business of its Cucina Classica Italiana, Inc.
subsidiary.
On December 30, 2002, the Company sold assets comprised of a customer
list, goodwill, right to use a license and distribution agreement with a
supplier, certain inventory and related packaging materials and supplies a
portfolio of import licenses for dairy products, and an assumption of a
liability to its distributor relating to the Galbani(R) brand cheese and meat
importing and distribution business of its Cucina Classica Italiana, Inc.
subsidiary and discontinued the operations of that subsidiary effective December
31, 2002.
8
Operating results of Cucina Classica Italiana, Inc. for the six months
ended June 30, 2002 are included in income from discontinued operations shown
separately in the accompanying financial statements.
Revenues of Cucina Classica Italiana, Inc. for the six months
ended June 30, 2002 were $3,230,717. This amount is not included in Revenues
in the accompanying financial statements.
Note 7 -- SEGMENT REPORTING
Industry segment information at June 30, 2003 and 2002 is summarized as
follows:
Total Revenue Operating Profits (Loss)
------------------------ -------------------------
2003 2002 2003 2002
------------------------ -------------------------
United States Operations $ 12,067 $ 7,110 $ (754,108) $ (277,221)
Italian Operations 57,534 (115,942) -
------------------------ -------------------------
Total Segment 69,601 7,110 (870,050) (277,221)
Corporate income(expenses) - 14,375 (136,453) (276,365)
------------------------ -------------------------
Consolidated $ 69,601 $ 21,485 (1,006,503) (553,586)
========================
Interest expense 8,525 -
-------------------------
Loss from continuing operations $(1,015,028) $ (553,586)
=========================
<table>
<caption>
Depreciation and
Capital Expenditures Amortization Expense Identifiable Assets
2003 2002 2003 2002 2003 2002
-------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
U.S. Operations $ 297,526 $ 2,282 $21,617 $25,938 $ 1,038,170 $ 15,880
Italian Operations 20,217 117,993 2,276 - 487,546 301,742
Corporate - - 47,178 52,582 1,616,625 2,036,205
Discontinued Op. - - 734,822
-------------------------------------------------------------------------------
Consolidated $ 317,743 $ 120,275 $71,071 $78,520 $ 3,142,341 $ 3,088,649
===============================================================================
</table>
9
Item 2. Management's Discussion and Analysis
Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the Consolidated Unaudited
Financial Statements and related notes, which are contained herein.
Results of Operations for the Three Months Ended June 30, 2003 and 2002
Net Revenues. Net revenues for the three months ended June 30, 2003
were $ 63,865 compared with $ 17,124 in 2002, an increase of $46,741, or 273.0%.
This increase includes the sale of a reconditioned system of approximately
$43,300 in the three month period ended June 30, 2003 and other incidental
amounts related to the start-up of our microwave technology subsidiary including
consulting fees and testing in our laboratories totaling $20,565 in 2003 and
$17,124 in the same period in 2002.
Gross Profit. We generated gross operating profits of $27,195 or 42.6%
of net revenues for 2003 versus gross profit of $17,124 or for 2002. This
increase is the result of the sale of the reconditioned system during the three
month period ended June 30, 2003.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $500,026 in 2003 versus $312,449 for 2002. This
represents an increase of $187,577, substantially all of which represents
start-up costs of our microwave technology subsidiary. SG& A expenses for the
period consisted of:
2003 2002
Employee compensation and related
expenses $ 285,371 $164,534
Depreciation and amortization 26,996 40,034
Advertising,trade shows, travel
and other selling expenses 45,246 28,400
Professional fees and other expenses
of being a public company 91,859 20,184
Administrative and general expenses 32,807 35,002
Insurance 6,424 21,217
Research and development 11,323 3,078
------------- ------------
TOTAL $ 500,026 $312,449
============= ============
Loss from Continuing Operations. Loss from continuing operations for
the three month period ended June 30, 2003 was $481,356 versus $295,325 for the
same period in 2002. These amounts represent start-up costs of our microwave
technologies subsidiary.
Income Taxes. We reported no provision for Federal income taxes for the
three month periods ended June 30, 2003 and 2002, as we had net losses for both
years.
10
Results of Operations for the Six Months Ended June 30, 2003 and 2002
Net Revenues. Net revenues for the six months ended June 30, 2003 were
$ 69,601 compared with $ 21,485 in 2002, an increase of $48,116, or 224.0%. This
increase includes the sale of a reconditioned system of approximately $43,300,
and other incidental amounts related to the start-up of our microwave technology
subsidiary including consulting fees and fees for testing in our laboratories
totaling $26,301 in 2003 and $21,485 in 2002.
Gross Profit. We generated a gross profit of $14,343 or 20.6% of net
revenues for 2003 versus gross profit of $21,485 for 2002. This decrease is
insignificant as the cost of sales amounts reported in 2003 represent certain
fixed manufacturing- related expenses of our Italian operation as well as the
direct costs related to the testing services performed.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1,020,846 in 2003 versus $575,071 for 2002. This
represents an increase of $445,775 substantially all of which represents
start-up costs of our microwave technology subsidiary. There were non-recurring
moving and start-up expenses of approximately $36,200 that were incurred during
the first quarter of 2003 relating to the move from Lakewood to Sayreville in
February of 2003. SG& A expenses for the period consisted of:
Six month period ended
June 30,
2003 2002
- --------------------------------------------------------------------------------
Employee compensation and related expenses $ 580,654 $305,056
Depreciation and amortization 71,071 78,520
Advertising,trade shows, travel and other
selling expenses 104,206 47,949
Professional fees and other expenses of
being a public company 123,234 51,465
Administrative and general expenses 56,045 53,626
Insurance 29,903 34,942
Moving expenses 36,200 -
Research and development 19,533 3,513
-------------- -------------
TOTAL $1,020,846 $575,071
============== =============
Loss from Continuing Operations. Loss from continuing operations for
the six month period ended June 30, 2003 was $(1,015,028) versus $(553,586) for
the same period in 2002. These amounts represent start-up costs of our microwave
technologies subsidiary.
Income Taxes. We reported no provision for Federal income taxes for the
six month periods ended June 30, 2003 and 2002, as we had net losses for both
years.
11
Liquidity and Capital Resources
The Company's sources of capital include, but are not limited to, the
issuance of public or private debt, bank borrowings, capital leases and the
issuance of equity securities.
On December 13, 2002, we completed a private placement of 1,030,000
shares of our common stock and 200,000 shares issuable upon the exercise of
warrants, from which we received gross proceeds of $1,030,000. The warrants are
dated December 13, 2002 and expire on December 12, 2005. The exercise price is
$1.00 per share. The shares of common stock issued in the transaction and those
issuable upon exercise of the warrants are subject to a registration rights
agreement. In accordance therewith, we filed a registration statement on Form
SB-2 with the Securities and Exchange Commission on January 22, 2003. We are
using the proceeds from this private placement to fund the growth of our
microwave technology business.
On June 10, 2003 the Company executed a promissory note and security
agreement and received a loan in the principal amount of $325,000 for a term of
four (4) months maturing on October 10, 2003. The loan bears interest at the
rate of 16% per annum, which will accrue and be payable at the maturity date
together with the principal. The note is secured by a pledge of 770,000 shares
of the Company's common stock which are being held in escrow by the lenders'
attorney. The Company has the right to extend the maturity date of the note for
a period of sixty (60) days upon payment of an extension fee of 70,000 fully
registered shares, provided, that as a condition to any such extension the SEC
shall have declared the registration statement relating to such shares and the
shares collateralizing the note effective.
At June 30, 2003, the Company had a net worth of $2,518,547 compared to
$2,468,219 at June 30, 2002.
The Company has limited requirements for capital expenditures in the
immediate future, except for the start-up of the CMT subsidiary for which the
Company may undertake an additional private placement.
The Company utilizes capital leases for the acquisition of operating
assets at its subsidiaries when appropriate. At June 30, 2003 the Company had no
capital leases.
Management believes that the Company has sufficient working capital to
meet the needs of its current level of operations, with the exception of the
requirements of CMT.
Seasonality
The Company's businesses are not subject to the effects of seasonality.
12
Plan of Operation
More than 200 installations of microwave heat processing systems and
technology have been undertaken in Europe and Japan. All but two of those
installations were undertaken by OMAC, the Company from which we purchased the
technology, patents and laboratory in Italy, and other entities. We have only
delivered two systems, one of which is in Switzerland, and was rented for an
initial period of five months, which has been extended by the customer. The
second system was installed in Italy on a contingent basis subject to the
customer's acceptance. After the completion of the installation the customer
elected not to accept the machine, and to continue using its previous
technology, which we feel is inferior to the new system. The system has been
returned to our inventory for modification and sale to a new customer.
Our systems and the technology are not well known outside Europe and
Japan. Our plan is to continue to promote and market our systems in Europe and
Japan, and to penetrate other markets. Our goal is to generate revenues from the
sale of microwave heat processing systems and the sale of technical services.
In order to facilitate sales of our microwave systems, we have
undertaken a major campaign of communications and education among future users,
governmental regulatory agencies and food industry professionals. We are seeking
to introduce our company, our systems, and the benefits of our systems to
potential users, so that we can obtain a high level of recognition and
acceptance of our systems.
Up until the recent introduction of CMT's patented technology the
common perception among food manufacturers in the US was that the food
applications of microwave heat processing technology are very limited due to the
uneven heating offered by existing microwave equipment manufactures (e.g. Amana
or Cryodry).
In the US commercial installations of microwave heat processing systems
were successful only for defrosting of frozen meat blocks and for the cooking of
bacon - two applications where non-uniformity of temperature is acceptable.
In order to introduce its technology in the United States CMT had to
overcome this common perception by providing food technologists, process
engineers, Quality Assurance specialists and other food industry professionals
with the evidence of the technology's features, advantages and benefits as
demonstrated by its earlier successful European track record of almost 200
industrial installations.
Through the education campaign, which has so far included the mailing
of more than 7,500 brochures, presentations at the meetings of various trade
organizations, and attendance at several trade shows and international
conferences, CMT achieved the attention of the Research & Development and
Operations departments of leading US food manufacturers. The professionals in
those organizations followed up with visits and tests at CMT's laboratory in New
Jersey, and based upon their positive feedback within their companies, CMT is
currently involved in applications development projects for top Fortune 100
companies.
13
Anticipated future activities in our education campaign:
Communication and education campaign - On going.
Using CMT's general brochure and a series of specific
technical brochures we provide professionals (food
technologists, process engineers, etc.) at targeted potential
customer companies with information about the benefits that
CMT's equipment will provide to their business.
Participation in trade shows - 2 to 3 times per year.
At these venues we present and demonstrate the capabilities of
our technology in the most prestigious and relevant technical
shows globally. In 2003 we have participated in Anuga FoodTec
in Cologne, Germany (April, 2003), and will participate in IBA
in Dusseldorf, Germany (October 2003) and the Worldwide Food
Expo in Chicago, Illinois (November, 2003).
Technical services to clients - On going.
We have begun providing microwave application development
services for our clients at our new laboratory in Sayreville,
New Jersey (and continue to do so at our Italian laboratory in
Scandiano, Italy.) Our clients use our full commercial kitchen
for the preparation of food products for testing in one of the
Company's microwave heat processing systems in order to
generate product samples needed by their Marketing, R&D,
Quality Assurance and Operations departments in order to
conduct a comprehensive due diligence of the business
proposition prior to their investment in our system. Following
such successful tests we also provide clients with access to
our systems in their own facilities through a short-term
rental of our microwave systems.
Partnership with engineering and manufacturing companies - On going.
We are conducting an on-going search to identify potential
partners that can enhance our competitive position and improve
our total delivered cost. With the significant weakness of the
dollar versus the Euro in the last year, it is much more
expensive for US companies to purchase equipment manufactured
in Europe. Accordingly, we are seeing qualified US equipment
manufacturers to become our partners in the construction of
our microwave systems in the United States for the North
American market.
14
Concurrent with the communications and education campaign, we have
begun to use both a direct sales force and an independent agent with regional
offices and representation throughout the United States. In addition, we have
relationships with a network of agents worldwide who will identify market and
sell our equipment to customers.
In developing our network of agents to sell our equipment in the United
States we have entered into an Agreement of Representation with a national
agency for the sale of food processing machinery, with headquarters in
California for the sale of our microwave heat processing equipment to the food
industry, using their network of regional sales agents throughout the United
States.
In addition, we have entered into exclusive agency agreements with two
European companies, one located in Zurich, Switzerland covering Switzerland,
Germany, Austria, and Lichtenstein, and for France with a well known agency for
the sale of food processing machinery headquartered in Argenteuil, France.
We are currently negotiating with a national agency for the sale of
food processing machinery located in Mississauga, Canada an exclusive agency
agreement covering Canada and British Columbia. Additional international
agencies are being identified and contacted
Following our participation at the Anuga FoodTec trade show in Germany
in April of 2003 we were contacted two companies from Japan and Thailand
requesting to become our agent in their respective countries. We have begun
working together with these companies exploring leads in their territories and
expect to decide by early 2004 if either one of these two companies should
become our exclusive agent in their designated territories
In addition to selling our microwave systems, we intend to provide
technical services to customers. We have two laboratories, one at our
Sayreville, New Jersey location, and one in our Italy location. Our Sayreville
location is also equipped with a full commercial kitchen. We have provided
potential clients with access to our laboratories in the USA and Italy so that
we can work with them to develop and customize new microwave heat processing
applications. Some of the technical services are, and will continue to be,
provided free of charge as part of our marketing efforts. Other more
comprehensive research and development services are marketed and will be offered
to customers for fees.
We hope to market our company and our capabilities to food and
pharmaceutical manufacturers through many means, including through partnerships
with engineering and design companies, and with manufacturers of complementary
equipment. We believe that such partnerships would be beneficial to both our
company and to our potential partner by enabling us to avoid duplication of
marketing, and research and development costs, and by expanding the field of
potential customers to whom our products would become known.
15
We are a member of ten relevant trade associations through which we
promote recognition of microwave technology in general and of our unique systems
in particular. Members of our staff have made presentations at various trade
association meetings and seminars to acquaint the members with our unique
systems.
At the present time the design and construction of systems is carried
out in Italy by our subsidiary CGTI and third parties. We are evaluating
additional manufacturing capabilities in the USA, so as to be prepared for
domestic construction of our systems as our sales volumes increase.
Anticipated Future Growth
CMT has a unique patented and proprietary expertise in microwave
processing applications. While the technology has been in use in Europe and in
Japan, with more than 200 successful installations, it is virtually unknown
beyond those markets.
CMT plans to penetrate these new markets and generate revenues from 2
distinct sources:
>> Sales of Microwave heat processing systems.
>> Sales of Technical Services.
In order to facilitate sales of the company's Microwave systems, a
major campaign of communications and education will be undertaken among future
users, government regulatory agencies and food industry professionals -
globally. The objectives of this campaign are:
>> To introduce the company and the benefits of its systems to
the universe of future potential users
>> To gain for these technologies a high level of recognition and
acceptance.
Concurrent with the communications and education campaign, the company
will establish its direct sales force in the USA, and a network of exclusive
agents worldwide to identify, negotiate and sell its equipment to clients on a
global basis.
The second revenue channel is from Technical Services. The company will
provide potential clients with access to its laboratories in the USA and Italy,
for the purpose of developing and customizing new processing applications. While
some of these services are provided free of charge as part of the marketing
efforts, other more comprehensive research and development services will be
marketed and offered to clients for fees.
The company uses its laboratories and technical staff to continuously
improve current systems, and develop next generation systems.
Beyond the efforts to sell systems to food manufacturers, the company
will market itself and its capabilities through partnerships with engineering
design companies, and with manufacturers of complimentary equipment, to provide
future clients with "Total Delivered Solutions".
16
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.
17
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The Company's principal executive officer and its principal financial officer,
based on their evaluation of the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14(c)) as of a date within 90 days prior
to the filing of this Quarterly Report on Form 10-QSB/A, have concluded that the
Company's disclosure controls and procedures are adequate and effective for the
purposes set forth in the definition in Exchange Act rules..
(b) Changes in internal controls.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the Company's internal controls
subsequent to the date of their evaluation.
18
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
(99.1) Certification of Chief Executive Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
Filed herewith.
(99.2) Certification of Chief Financial Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
Filed herewith.
(b) Reports on Form 8-K:
ITEM 2. ACQUISITION OR DISPOSAL OF ASSETS
Related to the sale of the Company's cheese business.
ITEM 5. OTHER EVENTS
Related to the December 13, 2002 private placement
for $ 1,030,000.
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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: September 5, 2003 By: /s/ Scott G. Halperin
------------------------------
Scott G. Halperin
Chairman
Chief Executive Officer
Date: September 5, 2003 By: /s/ Bernard F. Lillis, Jr.
-----------------------------------
Bernard F. Lillis, Jr.
Chief Financial Officer
Chief Administrative Officer
Treasurer
20
THE CLASSICA GROUP, INC.
CERTIFICATION PURSUANT TO
RULE 13-A-14 OF THE SECURITIES ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Scott G. Halperin, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of The Classica
Group, Inc.;
2. Based upon my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date; 5. The registrant's other certifying officer and I
have disclosed, based upon our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weakness in internal control; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control; and 6. The registrant's other certifying officer and I have indicated
in this quarterly report whether there are significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: September 5, 2003
/s/ Scott G. Halperin
Scott G. Halperin
Chief Executive Officer
21
THE CLASSICA GROUP, INC.
CERTIFICATION PURSUANT TO
RULE 13-A-14 OF THE SECURITIES ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Bernard F. Lillis, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of The Classica
Group, Inc.;
2. Based upon my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this quarterly report; 4. The
registrant's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date; 5. The registrant's other certifying officer and I
have disclosed, based upon our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weakness in internal control; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control; and 6. The registrant's other certifying officer and I have indicated
in this quarterly report whether there are significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: September 5, 2003
/s/ Bernard F. Lillis, Jr.
- --------------------------
Bernard F. Lillis, Jr.
Chief Financial Officer
22