SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 3, 1996 Commission File No. 1-6914
SUN CITY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-0950777
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5545 N.W. 35 Ave. Fort Lauderdale, FL 33309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 730-3333
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 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_____
<PAGE>
FINANCIAL INFORMATION
The consolidated financial statements included herein have been
prepared by the Company, without audit, according to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations. The financial statements reflect, in the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to represent fairly the financial position
and results of operations as of and for the periods indicated. The
statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended February 3, 1996.
The results of operations for the six month period ended August 3,
1996, are not necessarily indicative of results to be expected for
the entire year ending February 1, 1997.
<PAGE>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
August 3, February 3,
ASSETS 1996 1996
CURRENT ASSETS:
Cash and equivalents $427,033 $760,885
Accounts and trade notes receivable,
less allowance for doubtful accounts
of approximately $276,000 and $186,000
in 1996 and 1995, respectively 4,268,171 6,779,193
Inventories 2,733,312 2,755,593
Notes receivable - current portion 14,908 14,816
Prepaid expenses 357,348 210,029
TOTAL CURRENT ASSETS 7,800,772 10,520,516
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 108,133 108,133
Buildings and improvements 467,266 438,077
Machinery and equipment 2,100,526 2,017,272
2,675,925 2,563,482
Less accumulated depreciation (1,204,593) (1,025,723)
1,471,332 1,537,759
Properties held for sale 504,231 596,318
Long-term notes receivable 100,690 105,930
Excess of purchase price over fair value
of net assets acquired 1,827,684 1,615,611
OTHER ASSETS 767,072 792,565
TOTAL $12,471,781 $15,168,699
August 3, February 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
CURRENT LIABILITIES:
Accounts payable $4,135,704 $5,318,812
Accrued expenses 276,824 563,584
Current portion of long-term debt 439,196 496,056
TOTAL CURRENT LIABILITIES 4,851,724 6,378,452
DEFERRED COMPENSATION PAYABLE 349,913 337,913
LONG-TERM DEBT 6,744,768 8,096,798
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value 3,000,000
shares authorized; 2,276,116 shared
issued in 1996 and 1995 227,612 227,612
Capital in excess of par value 1,041,721 1,070,286
Retained earnings 2,121,603 2,004,838
3,390,936 3,302,736
Less: Treasury stock at cost, 828,214
and 837,164 shares in 1996 and 1995,
respectively (2,653,560) (2,682,200)
Less: Receivable for common stock sold
to ESOP (212,000) (265,000)
TOTAL STOCKHOLDERS' EQUITY 525,376 355,536
TOTAL $12,471,781 $15,168,699
<PAGE>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED THREE MONTHS ENDED
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
Sales $34,532,847 $42,452,981 $15,177,943 $20,633,656
Costs and Expenses
Cost of goods sold 29,343,376 35,768,406 12,931,538 17,530,164
Operating expenses 2,496,561 4,466,792 1,066,217 2,431,884
Selling, general and
administrative
expenses 2,150,080 2,099,503 964,029 903,385
Interest expense 418,041 540,882 201,784 279,226
Other (income), net 8,024 (19,525) 14,154 (9,114)
Total Cost
and Expenses 34,416,082 42,856,058 15,177,722 21,135,545
Earnings (Loss) From Operations
Before Income
Taxes 116,765 (403,077) 221 (501,889)
Provision For Income Taxes - 2,000 - -
Net Earnings (Loss) $ 116,765 $(405,077) $ 221 $(501,889)
Earnings (Loss) Per Common and
Common Equivalent
Share $ .08 $( .28) - $( .35)
Earnings (Loss) Per Common Share
Assuming Full
Dilution $ .08 $( .28) - $( .35)
<PAGE>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
August 3, July 29,
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
Net earnings $ 116,765 $(405,077)
Adjustments To Reconcile Net Earnings
To Net Cash (Used In) Or Provided By
Operating Activities:
Depreciation 184,797 353,684
Amortization of excess of purchase price
over fair market value of net assets
acquired 83,213 34,711
Provision for losses on accounts receivable 118,980 126,822
Change in assets and liabilities:
Decrease (increase) in trade
accounts receivable 2,392,042 (1,233,449)
(Decrease) increase in inventories 22,281 (676,692)
(Increase) in prepaid expenses (147,319) (128,363)
(Increase) in investment in joint venture - (9,250)
(Increase) decrease in other assets (302,026) (255,593)
(Decrease) increase in accounts payable (1,183,108)1,423,940
(Decrease) Increase in accrued expenses (286,760) 27,056
(Decrease) increase in income taxes payable - (6,000)
Increase in deferred compensation payable 12,000 28,600
Total Adjustments 894,100 (314,534)
Net Cash Provided By Or (Used In)
Operating Activities $1,010,865 $(719,611)
Cash Flows From Investing Activities:
Capital expenditures 5,950 (277,398)
Cash Provided By Or (Used In)
Investing Activities 5,950 (277,398)
Cash Flows From Financing Activities:
Proceeds from notes payable 60,000 1,488,739
Repayments on notes receivable 5,148 7,697
Principal payments on notes payable (1,468,890) (1,359,417)
Proceeds from subordinated debentures - 700,000
Proceeds from receivable from ESOP 53,000 53,000
Proceeds from excercise of options 75 -
Net Cash (Used In) Or Provided By
Financing Activities (1,350,667) 890,019
Net (Decrease) Increase In Cash
and Equivalents (333,852) (106,990)
Cash and Equivalents, Beginning of Year 760,885 453,608
Cash and Equivalents, End of Year $ 427,033 $ 346,618
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion provides information which management believes is
relevant to an assessment and understanding of the Company's operations and
financial condition. This discussion should be read in conjunction with
the financial statements.
COMPANY PROFILE:
Sun City Industries, Inc. (the "Company"), which began in 1949 as an egg
processing and marketing company, has now moved its focus to the
foodservice marketing and distribution business throughout parts of the
eastern seaboard of the United States with a heavy concentration in the
State of Florida. The Company intends to expand its market share through
internal sales growth and the acquisition of related companies in the
foodservice distribution business.
In 1990, the Company began its expansion as a foodservice distributor that
now includes five centers in Florida covering the West Coast of Florida,
Central Florida and Southeast Florida. In addition, the Company has
operations that distribute to markets in Atlanta, Georgia, Baltimore,
Maryland, Philadelphia, Pennsylvania and throughout New Jersey.
The Company's clientele includes hotels, restaurants, airline caterers,
country clubs and cruiseship lines.
The Company's goal is to build a network of foodservice companies
throughout the heavily populated eastern seaboard of the United States with
its major focus on the State of Florida.
<PAGE>
RESULT OF OPERATIONS:
FOR THE SIX MONTHS ENDED AUGUST 3, 1996 AND JULY 29, 1995
SALES:
During the six months, consolidated sales decreased $7,920,134, down
18.7% compared to a year ago.
Six Total Foodservice % of Egg % of
Months Sales Division Total Division Total
1996 $34,532,847 $31,524,341 91.3% $2,991,008 8.7%
1995 42,452,981 28,792,481 67.8 13,560,501 31.9
Net change $(7,920,134) $2,731,860 23.5% $(10,569,493) (23.2%)
Reasons:
Amount Explanations
Foodservice:
Produce Co. $5,593,470 Increase due to the new produce division
started June 19, 1995.
Gulf Coast (2,631,987) Decrease due to a portion of Gulf
Coast's business switched to warehouse
and distribution servicing.
All Others (229,623) Decrease due to generally lower unit
sales.
Net Increase $2,731,860
Eggs:
Egg Marketing 606,852 Increase includes consulting and rent
income which resulted from the sale of
the three egg businesses in fiscal 1996.
Egg Processing (11,176,345) Decrease results from the sale of the
three egg processing divisions during
fiscal 1996.
Net Decrease $(10,569,493)
<PAGE>
COST OF GOODS SOLD:
Cost of goods sold include product cost and freight in costs.
During the six months, cost of goods sold decreased $6,425,030. This
decrease was generally in line with the change in the Company's business
resulting from the sale and elimination of the three egg processing
divisions. The rate of change is influenced by the Company's overall
customer and product mix, as well as the changes in market prices which
fluctuate from year to year.
OPERATING EXPENSES:
Operating expenses include warehousing and distribution costs and for the
prior year the cost of processing within the three egg operations.
During the six months operating expenses decreased $1,970,231 reflecting
the Company's change in its business as compared to the same period of the
prior year which included egg operating expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses were up a net $50,577. The
change reflects increases in the foodservice division primarily with the
newly formed produce division offset by a combination of the elimination
of the three egg operations and reduction in corporate headquarters costs.
INTEREST EXPENSE:
Interest expense decreased by $122,841 during the first six months of
fiscal 1997. This drop reflects a decrease in the average outstanding debt
of $952,000 for the current period compared to the corresponding period a
year earlier.
INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS 109, under
which deferred tax liabilities are recognized for future taxable amounts
and deferred tax assets are recognized for future deductions and operating
loss carryforwards. A valuation allowance is recognized to reduce net
deferred tax assets to the amounts that are more likely than not to be
realized.
The Company estimates that, after filing its fiscal 1996 tax return, it
will have tax loss carryforwards of approximately $4,700,000 expiring in
the years 2005 through 2009.
<PAGE>
NET EARNINGS:
Net Earnings for the six months amounted to $116,765 as compared to
a loss of $405,077 for the same period a year ago. Earnings per
share totalled $.08 versus a loss of $.28 per share reported for
the same period a year ago.
Reasons:
Amount Explanations
Foodservice $120,710 Improved operating profits in 5 of the 7
operating units.
Egg Marketing 170,231 Transition from a losing cyclical egg
production-processing operation to a
more consistant egg marketing division
with added revenue from its consulting
and rent income agreements.
Headquarters Cost 181,364 Elimination of personnel and expenses
associated with all prior egg operations
plus a reduction in executive payroll
and related costs at corporate
headquarters.
Interest Expense122,841 Savings related to reduced debt levels
compared to the prior year.
Other (73,304) Loss of commission income associated
with the disposed egg businesses.
Net Improvement$521,842
EARNINGS (LOSS) PER COMMON SHARE:
August 3, July 29,
Six Months Ended 1996 1995
Earnings per common and common
equivalent share $ .08 $(.28)
Earnings per common share
assuming full dilution $ .08 $(.28)
Average shares used in computation:
Common equivalent shares 1,528,397 1,438,952
Fully diluted shares 1,743,781 1,654,336
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
The fiscal 1996 loss has depleted substantially all of the Company's
capital. Management expects the Company to return to profitability by
focusing its efforts on developing the foodservice business and maintaining
its small but profitable egg marketing company. However, the strategy of
expanding the Company's market share in the foodservice industry through
the acquisition of small to mid-sized foodservice distribution companies
has been curtailed at this time as a result of the expanded losses and
reduced capital incurred during fiscal 1996. The Company no longer has the
capital to seek expansion through acquisitions. The Company has disposed
of its egg production and processing operations and has instituted efforts
to reduce administrative expenses. Management will concentrate its efforts
on the existing foodservice business with a goal to improve each operation
and grow internally until it can become profitable enough to seek other
acquisitions. There can be no assurance, however, that management's
efforts will ultimately be successful.
During fiscal 1996, the Company:
Disposed of property, plant and equipment and related joint venture
investments relating to its Spring Grove, Pennsylvania, Burgaw, North
Carolina, and Jarratt, Virginia, egg production and processing operations.
This resulted in a reduction in fixed assets and capital lease obligations
of $1,543,663 and $503,031, respectively.
Acquired Sheppard Distributors, Inc. of Auburndale, Florida for $1,350,000.
This resulted in goodwill of $450,000.
Surrendered certain key man life insurance policies, the net proceeds of
which were used to purchase new split dollar and paid up deferred
compensation policies.
Completed its second private placement offering by raising an additional
$700,000 in five year Senior Subordinated Convertible Debentures carrying
a fixed 9% interest rate, convertible at $5.125 per share.
Expanded its credit facility with its major lender from $7.0 million to
$7.5 million. The credit facility is solely for the Company's working
capital needs.
As of February 3, 1996, the Company did not meet the minimum net worth
requirement required by its lending arrangement. The Company has obtained
a waiver from the creditor regarding this covenant through March 31, 1997.
In conjunction with the granting of this waiver, the lender increased the
interest rate on the line of credit by an additional quarter of one
percent.
<PAGE>
On August 7, 1996 the Company had been notified by the lender under its
principal credit facility that it had borrowed $1.2 million in excess of
the lender's formula of the applicable borrowing base limitations and that,
therefore, certain technical events of default had occurred under its
credit facility. As a result, and until the events of default have been
cured, the rate of interest payable on the then outstanding balance of $4.6
million has increased from prime plus 2.50% to prime plus 4.25%. The
amount of the overadvance which has already been reduced by $504,000 to
$678,000, should be significantly reduced during the third and fourth
quarters ended February 1, 1997 as a result of increased seasonal sales,
the possible sale of certain real estate held by the Company as property
held for sale, as well as from the collection of what the lender classifies
as ineligible accounts. The Company and its lender have both come to an
accommodation in principle subject to the execution of a definitive
agreement wherein the lender will continue to provide the Company with its
working capital requirements as called for under the existing borrowing
formula. The Company believes that based on this arrangement and the fact
that sales have already begun to increase, it will have sufficient working
capital to meet its day to day obligations.
In addition to the lender providing cash for operations, the Company
believes it will require additional financing to meet other obligations and
capital needs.
On August 1, 1996, the Company failed to make its semi-annual interest
payment on its Senior Convertible Bonds and on September 1, 1996 was in
default and is in arrearage on such obligation totalling $59,500.
The Company is currently investigating the availability of additional or
substitute financing, as well as a capital investment to satisfy its
capital needs. If, however, the Company is not successful in obtaining an
investment or such financing, the Company may seek other remedies to
address any liquidity problems that may arise in the future.
8-K FILING:
On August 7, 1996, Form 8-K was filed with the Securities and Exchange
Commission and the American Stock Exchange.
SALES OF UNREGISTERED SECRUITIES (DEBT OR EQUITY):
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUN CITY INDUSTRIES, INC.
REGISTRANT
Date: September 16, 1996 Malvin Avchen
Malvin Avchen, C.E.O.
Date: September 16, 1996 Syed Jafri
Syed Jafri, Treasurer
The financial statements for the six months ended August 3, 1996 and
July 29, 1995, respectively, are unaudited but are prepared in
conformity with accounting principles used at our last fiscal year end
and include all adjustments which the Company considers necessary for a
fair presentation.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SUN CITY INDUSTRIES, INC. FINANCIAL STATEMENTS F.P.E 08-03-96
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 427,033
<SECURITIES> -0-
<RECEIVABLES> 4,559,079
<ALLOWANCES> 276,000
<INVENTORY> 2,733,312
<CURRENT-ASSETS> 7,800,772
<PP&E> 2,675,925
<DEPRECIATION> 1,204,593
<TOTAL-ASSETS> 12,471,781
<CURRENT-LIABILITIES> 4,851,724
<BONDS> 6,744,768
<COMMON> 227,612
-0-
-0-
<OTHER SE> 297,764
<TOTAL-LIABILITY-AND-EQUITY> 12,471,781
<SALES> 34,532,847
<TOTAL-REVENUES> 34,532,847
<CGS> 31,839,937
<TOTAL-COSTS> 34,416,082
<OTHER-EXPENSES> 2,576,145
<LOSS-PROVISION> 118,980
<INTEREST-EXPENSE> 418,041
<INCOME-PRETAX> 116,765
<INCOME-TAX> -0-
<INCOME-CONTINUING> 116,765
<DISCONTINUED> -0-
<EXTRAORDINARY> -0-
<CHANGES> -0-
<NET-INCOME> 116,765
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
