UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
X SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
OR
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-6914
Sun City Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 59-0950777
(State or other jurisdiction of (IRS Employer ID.No.)
incorporation or organization)
5545 N.W. 35th Avenue, Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code:(954) 730-3333
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
Common Stock, American Stock Exchange
Par value $.10 per share
Securities registered pursuant to Section 12 (g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of April 30, 1997, the aggregate market value of the
Registrant's voting stock held by non-affiliates of the Registrant
was $1,109,500 (the price at which the stock was sold prior to the
close of business on April 30, 1997). For purposes of this
calculation, shares of Common Stock held by directors, officers
and stockholders whose ownership exceeds five percent of the
Common Stock outstanding at April 30, 1997 were excluded from the
number of shares held by non-affiliates. Exclusion of shares held
by any person should not be construed to indicate that such person
possesses the power, direct or indirect, to direct or cause the
direction of the management or policies of the registrant or that
such person is controlled by or under common control with the
registrant.
As of April 30, 1997, there were 1,447,902 shares of the
Registrant's $.10 par value Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant's definitive proxy statement for its 1997
Annual Meeting of Stockholders is incorporated by reference into
Part III of this Form 10-K.
Total Number of Pages: 46 Exhibit Index: Page No. 43
PART I
Special Note Regarding Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K (this
"Form 10-K"), including statements under "Item 1. Business" and
"Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations," constitute "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward
looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance
or achievements of Sun City Industries, Inc. (the "Company" or
"Sun City") to be materially different from any future results,
performance or achievements expressed or implied by such forward-
looking statements. Such factors include, but are not limited to,
the following: general economic and business conditions;
competition; success of operating initiatives; development and
operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; acceptance of new
services; changing trends in customer orders; changes in business
strategy or development plans; quality of management;
availability, terms and deployment of capital; business abilities
and judgment of personnel; availability of qualified personnel;
labor and employee benefit costs; availability and cost of product
and supplies; changes in, or failure to comply with, government
regulations; the costs and other effects of legal and
administrative proceedings; and other factors referenced in this
Form 10-K. The Company will not undertake and specifically
declines any obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated
events.
ITEM 1 - Business
As a result of a 1990 Stock Redemption, a new Executive
Management team took over operating control of Sun City. The
Executive Team developed a business plan and began its
implementation during fiscal year 1993. The plan concentrated on
the Company's foodservice operations where Management believed
opportunities existed for growth through mergers and acquisitions
as well as geographical and product line expansion.
1) General Development of the Business
a) The Company was founded in 1949 as an egg distributor. Sun
City went public in 1966 to raise cash to expand its basic
business and make acquisitions. Sun City made its first
acquisitions in 1969, an egg producer located in Florida and an
egg processor located in Georgia. The Company moved into
foodservice distribution in late 1969 with the acquisition of
Certified Poultry & Egg Co. of Miami, Florida. In 1970 and 1971,
Sun City made several other acquisitions of egg distribution and
processing companies. During the late 1970's, Sun City acquired
its second egg production company located in Wilson, North
Carolina. During this period, Sun City's primary focus was the
production, processing and marketing of eggs.
b) Sun City's egg operations grew throughout the 1970's and
1980's. Sun City also experienced rapid internal growth in its
sole foodservice business unit, which revenues grew from
approximately $1.5 million in 1969 to over $10 million by 1979.
The Company expanded its foodservice operations by opening an
Orlando foodservice distribution center in 1982. Sun City
disposed of all its own egg production operations by 1989 due to
the volatile nature of the raw egg supply in the industry. In the
early 1990's, the Company's new management team began
implementation of a plan to build a network of foodservice
companies serving the Southeastern United States with a primary
focus on Florida. In 1991, Sun City acquired William F. O'Brien,
Inc. and Diversified Foods, Inc., both of Fort Lauderdale, Florida
and Gilley's Sausage Co., Inc. of Winston, Georgia. In 1993, Sun
City acquired Gulf Coast Food Distributors, Inc. located in Port
Richey, Florida.
c) In February 1995, Sun City acquired Sheppard Distributors,
Inc. of Auburndale, Florida. Sun City Produce, Inc. was
founded in June 1995.
d) In June 1995, Sun City started its wholesale produce division
in Pompano Beach, Florida. By the fiscal year ending February 1,
1997, sales had grown to $13.4 million.
e) During fiscal year 1993, Sun City was faced with severe
shortages in its supply of eggs, creating substantial losses in
its egg division. In an attempt to protect the profitability of
its egg division, Sun City developed a program of investing in egg
producing joint ventures, creating a steady supply of eggs for the
egg processing operations. Sun City completed the joint venture
program in fiscal year 1993, resulting in increased profitability
in its egg division in 1993 and 1994. However, the highly
cyclical nature of the egg industry led to reduced profitability
during late 1994 and all of 1995. Company management, realizing
that Sun City's competitive position in the egg production and
processing business was declining, made the decision to exit the
egg business allowing management to focus its attention solely on
the egg marketing and foodservice distribution business. By
January 1996, Sun City divested all of its egg production joint
ventures and egg processing businesses.
f) Today, the Company has a customer base generating annualized
sales volume of approaching $70 million in highly desirable
markets. Sun City's primary areas of distribution span from
Naples to the Panhandle on the west coast of Florida, and from
Tampa to Orlando to Daytona in Central Florida. The Company's
South Florida market area stretches along the east coast from West
Palm Beach to Dade, Broward and Monroe counties.
A summary of sales by business segment for the fiscal years
1997, 1996 and 1995 is as follows:
1997 1996 1995
Foodservice Division 90.7% 71.4% 59.2%
Egg Division and Other 9.3% 28.6% 40.8%
2) Description of segments in developmental stage - None.
3) Sources and Availability of Merchandise - The Company believes
that the relationship with its suppliers has been adequate but is
currently declining given the Company's current liquidity
problems.
4) Patents, trademarks, licenses, franchises held - None.
5) Seasonal impact on the Company's consolidated business:
The majority of the Company's business is now located
within the State of Florida and since the state's primary business
is tourism, the Company's sales and business is affected by the
influx of tourists and visitors that inhabit Florida from
Thanksgiving to Easter each year. As a result, the Company's
quarterly sales revenues reflect this seasonal variation.
First Quarter (February - April) $19,354,904
Second Quarter (May - July) 15,177,943
Third Quarter (August - October) 16,063,150
Fourth Quarter (November - January) 17,649,386
6) The Company was able to turn its resale inventory 25 times
during the fiscal year ended February 1, 1997 and maintain its
outstanding average receivables at the 31 day level.
The Company does not maintain large amounts of inventory to
meet customer requirements nor does it provide extended payment
terms to its customers.
7) During the fiscal years ended February 1, 1997, February 3,
1996 and January 28, 1995, sales to the Company's major customer
were 9.3%, 7.5% and 9.5%, respectively, of consolidated sales; and
sales to the next leading customer were 6.3%, 5.5% and 7.2%,
respectively, of consolidated sales.
Although the Company's relationships with many of its major
customers are long standing, the Company generally does not have
contracts with its customers and, accordingly, such customers have
no legal obligation to continue purchasing from the Company. The
Company believes that its relationships with its customers are
good and that the loss of one of its major customers would have
only a temporary adverse effect on its business. During the
fiscal year ended February 1, 1997, approximately 91% of Company's
total sales were made to about 4,000 institutional customers
located in Florida, Georgia, Pennsylvania, New Jersey, New York,
Washington D.C. and Maryland. During fiscal years ended February
3, 1996 and January 28, 1995, these sales amounted to
approximately 71% and 60%, respectively.
8) The Company has no backlog of orders.
9) Government contracts subject to renegotiation or termination -
None.
10) The foodservice industry is both highly competitive and is
comprised of a large number of competing entities. Management
does not believe the Company is a significant factor in any of its
lines of business.
11) The Company had no expenditures for research and development
during the fiscal years ended February 1, 1997, February 3, 1996
and January 28, 1995.
12) The Company has not had to make any expenditures in connection
with compliance with environmental regulations.
13) The Company (including its wholly-owned subsidiaries) had 170,
300 and 310 employees at the end of fiscal years 1997, 1996 and
1995, respectively,
ITEM 2 - Description of Property
Location Owner/Tenant Facilities
1. Miami, Owner Plant complex comprising
Florida approximately 10,125 sq. ft. of land
and improvements. Currently, the
facility is not being utilized and is
being held for sale.
2. Hawthorne, Owner A 183 acre farm complex
Florida remains, consisting of 6 acres of
lakefront property including one
residence of 3,350 sq. ft.; 10 acres
comprising a 5,041 sq. ft. feed mill
complex including storage tanks, a
warehouse and its own offices; and a
15,400 sq. ft. warehouse. During the
first quarter of fiscal 1993 all
operations were discontinued and the
property was listed for sale. During
fiscal 1997 20 acres were sold.
3. Burgaw, Owner Plant complex comprising
North Carolina approximately 18,300 sq. ft. of land
and improvements of which 12,100 sq. ft. is for general
operations, 5,200 sq. ft. is refrigerated, and 1,000 sq. ft. is
office space. The Company was a tenant of Pender County
Industrial Development Corporation under purchase option lease.
During the 1993 fiscal year, the debt on this facility was paid in
full and as such title to the property was deeded over to the
Company by the Pender County Industrial Development Corporation.
Operations ceased during December 1995. This facility is
currently being leased out.
4. Jarratt, Owner Plant complex comprising
Virginia approximately 17,500 sq. ft. on 5.72
acres of land of which 12,000 sq. ft. is used for warehousing and
distribution, 4,400 sq. ft. is refrigeration, and 1,100 sq. ft. is
office space. Operations ceased on January 31, 1996. This
property has been listed for sale.
5. Orlando, Tenant Plant complex comprising
Florida approximately 7,200 sq. ft. of
warehouse. The Company is a tenant at a monthly rental of $1,830
under a lease expiring on November 30, 1997. This facility is
adequate and being fully utilized.
6. Fort Lauderdale, Tenant Plant complex comprising
Florida 15,556 sq. ft. including the
Company's executive and administrative offices and its Certified
Poultry & Egg Foodservice operations. The plant includes 5,000
sq. ft. of refrigerated space, 4,608 sq. ft of dry warehouse space
and 5,942 sq. ft. of operations and administrative offices. The
Company is a tenant, at a current monthly rental of $8,982, under
a lease expiring on January 9, 2000. The lease has a 5% yearly
escalation. This facility is adequate and is being fully
utilized.
7. Atlanta, Owner Plant complex comprising
Georgia approximately 5,000 sq. ft. of
coolers, freezers and office space on 2.5 acres of land. This
facility is adequate and is being fully utilized.
8. Port Richey, Tenant Plant complex comprising
Florida approximately 30,000 sq. ft. of
which 10,000 sq. ft. is refrigerated, 7,000 sq. ft. is a
refrigerated dock area, 11,500 sq. ft. is a dry warehouse and
1,500 sq. ft. is office space. The Company is a tenant at a
monthly rent of $9,000 until December 1997. This facility is
adequate and being fully utilized.
9. Auburndale, Tenant Plant complex comprising
Florida approximately 15,000 sq. ft. of
which 10,000 sq. ft. is refrigerated, 3,000 sq. ft. is warehouse
and 2,000 sq. ft. is office space. The Company is a tenant, at a
monthly rent of $3,500 under a lease expiring February 26, 1998.
This facility is adequate and being fully utilized.
10. Burlington, Tenant Plant complex comprising
New Jersey approximately 14,900 sq. ft. of
which 7,000 sq. ft. is refrigerated, 5,400 sq. ft. is warehouse
and 2,500 sq. ft. is office space. The Company is a tenant, at a
monthly rent of $2,607 under a lease expiring August 31, 1997.
This facility is adequate and being fully utilized.
11. Pompano Beach, Tenant Plant complex comprising of
Florida approximately 20,800 sq. ft. of
which approximately 90% is refrigerated. The Company is a tenant,
at a monthly rent of $13,779 under a lease expiring May 31, 1999.
This facility is adequate and being fully utilized.
ITEM 3 - Legal Proceedings
There are no material pending legal proceedings (other than
ordinary routine litigation incidental to the business) to which
the Company or any of its subsidiaries is a party or of which any
of their property is the subject.
ITEM 4 - Submission of Matters for Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report, through the solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the executive officers of the Company as
of February 1, 1997:
Name Age Position and Date Commenced
Malvin Avchen 63 Chief Executive Officer since April 1990
Gustave Minkin 65 President and Secretary since April 1990
Saul Zalka 62 Chief Operating Officer since April 1990
Syed Jafri 52 Treasurer since April 1990
Set forth below is a biographical description of each
executive officer based on information supplied by them:
Mr. Malvin Avchen served as Treasurer from 1969 to April 1990,
and as a Director of the Company since 1972. Mr. Avchen has been
a Certified Public Accountant since 1963 and is currently a member
of the American Institute of C.P.A.'s and Florida Institute of
C.P.A.'s.
Mr. Gustave Minkin served as Vice President of Marketing from
1970 to April 1990 and as Director of the Company since 1972.
Mr. Saul Zalka served as Vice President of Institutional
operations from 1970 to April 1990 and as a Director of Company
since 1981.
Mr. Syed Jafri served as Controller since 1975.
PART II
ITEM 5 - Market for Registrant's Common Stock and Related
Stockholders' Matters
a) The Company's Common Stock is listed and traded on the
American Stock Exchange under the ticker symbol SNI. The sales
price of the Common Stock for each full quarterly period within
the two most recent fiscal years were as follows:
Fiscal 1997 Fiscal 1996
Cash Cash
Quarter High Low Dividends Quarter High Low Dividends
1 $3.13 $2.38 None 1 $5.38 $4.38 None
2 3.13 2.25 None 2 4.88 3.38 None
3 2.75 1.88 None 3 4.38 3.25 None
4 1.63 .75 None 4 3.63 2.00 None
b) There were approximately 175 stockholders of record on
April 15, 1997. This total does not include stockholders listed
with brokers or their agents in street name.
c) As of April 15, 1997, the high and low sales price for the
Common Stock was $.9375 per share.
ITEM 6 - SELECTED FINANCIAL DATA
Years Ended
February 1, February 3, January 28, January 29, January 31,
1997 1996 1995 1994 1993
OPERATING RESULTS:
Sales $68,245,383 $91,084,629 $69,351,205 $66,098,210 $61,255,226
(Loss) Earnings Before
Income Taxes (1,167,087) (2,761,305) (74,078) 237,950 (270,301)
Net (Loss) Earnings (1,167,087) (2,761,305) (82,078) 221,950 (333,001)
Net (Loss) Earnings
per common share (.81) (1.92) (.06) .15 (.23)
Shares Used in
Computation 1,447,902 1,438,952 1,437,165 1,477,260 1,435,633
BALANCE SHEET
DATA AT YEAR END:
Working capital 421,337 4,142,064 5,166,343 5,058,817 2,309,211
Working capital ratio 1.1 to 1 1.65 to 1 2.01 to 1 1.97 to 1 1.47 to 1
Total assets 12,447,017 14,929,814 16,287,880 14,011,244 10,852,814
Long-term obligations 5,409,828 8,096,798 7,675,289 5,400,233 2,880,291
Stockholders' equity
(deficit) (711,476) 355,536 3,063,841 3,086,968 2,812,018
Market price per common
share 1.13 2.00 5.125 2.88 4.13
Shares outstanding at year
end 1,477,902 1,438,952 1,438,952 1,435,702 1,435,702
(a) There were no cash dividends paid during the five year period ended
February 1, 1997.
ITEM 7 - 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 consolidated financial
statements and notes appearing herein.
COMPANY PROFILE:
Sun City Industries, Inc. (the "Company"), which began in 1949 as
an egg processing and marketing company, is presently primarily
engaged in the foodservice marketing and distribution business
throughout much of the eastern seaboard of the United States with
a heavy concentration in Florida.
In 1990, the Company began its expansion as a foodservice
distributor that now includes four centers in Florida covering the
West Coast of Florida, Central Florida and Southeast Florida from
Key West to West Palm Beach. 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 national and regional
supermarkets, hotels, restaurants, airline caterers, cruise lines,
schools and prisons.
The Company's current goal is to find an investor or merger partner
to take full advantage and grow the broad based business that
currently exists throughout the heavily populated eastern seaboard
of the United States.
RESULTS OF OPERATIONS:
SALES:
Sales for the fiscal years 1997, 1996 and 1995 were as follows:
% (Decrease)
Year Sales % Increase
1997 $68,245,383 (25.1)%
1996 91,084,629 31.3%
1995 69,351,205 4.9%
For the fiscal year ended February 1, 1997, consolidated sales
decreased $22.8 million or 25.1%. Of this decrease $19.6 million
resulted directly from the sale and elimination of the three egg
operations. Additionally, a decrease in the size of the Gulf
Coast operation offset net sales increases in the other
foodservice divisions.
For the fiscal year ended February 3, 1996, consolidated sales
increased $21.7 million or 31.3%. Sales increased $16.9 million
as a result of the acquisition of Sheppard Foodservice on February
27, 1995. Sales increased $7.6 million resulting from the start
up of the Sun City Produce division on June 19, 1995. Offsetting
these increases was a $2.2 million decrease in sales in the
discontinued egg division, resulting in a 7.7 million decrease in
units sold.
COST OF SALES:
Cost of sales include product cost, warehousing, distribution and
egg processing costs. Cost of sales as a percentage of sales was
94.0% in fiscal 1997, 95.2% in fiscal 1996 and 92.3% in fiscal
year 1995. Margins are influenced by the Company's overall
customer and product mix shifting from primarily an egg company to
that of a foodservice company. The decrease in the cost of sales
percent in fiscal year 1997 was also the result of disposing of
the Company's egg production operations and joint venture
investments.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses remained fairly
constant as a percentage of sales for fiscal 1997, 1996 and 1995,
at 6.5%, 6.5% and 6.9%, respectively.
During fiscal 1997, administrative costs decreased $1,494,875 due
to the elimination of the Company's three egg divisions as well as
a major reduction in costs at the Company's administrative home
office. Management expects that as the Company's operations become
more foodservice oriented, future direct selling, general and
administrative expenses, as a percentage of sales, will
approximate 6.0% to 6.5%.
During fiscal 1996, overall selling, general and administrative
expenses increased $1,181,756 due to the addition of Sheppard
Foodservice and Sun City Produce.
INTEREST EXPENSE:
Interest expense decreased $151,308 in fiscal 1997. The lower
interest costs result primarily from the elimination of debt
associated with the disposition of the Company's three egg
operations offset by higher rates experienced during the year.
Interest expense increased $392,396 in fiscal 1996. This increase
relates to debt associated with the Sheppard acquisition, the
issuance of an additional $700,000 in Convertible Bonds in
February 1995 and a 2.5% effective increase in average interest
rates for fiscal year 1996 of 11.0% versus 8.5% for fiscal year
1995 associated with the Line of Credit.
DISPOSITION OF EGG OPERATIONS:
During 1995, management implemented several strategic measures.
These measures included the disposition of three egg operations
and related egg production joint venture investments.
In September 1995, the Company disposed of its Spring Grove,
Pennsylvania egg operations and related joint venture investment.
In December 1995, the Company disposed of its Burgaw, North
Carolina egg operations and related joint venture investment and
in January 1996, the Company disposed of its Jarratt, Virginia egg
operations.
As a result of these sales and the operating losses sustained by
these operations during the year, the Company recorded losses of
approximately $1,600,000 of which approximately $720,000 resulted
from the disposition of approximately $3,100,000 of assets.
During the year these operations generated approximately
$19,900,000 in sales revenues.
The Company will continue to operate its growing foodservice
operations and an egg marketing division that will include the
marketing of eggs on a regional basis. The egg marketing
operation will generate consulting and royalty income for the next
four to five years resulting from the sales and disposition of the
three egg operations.
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 1997 tax return, it
will have tax loss carryforwards of approximately $5,500,000
expiring in the years 2009 through 2012.
NET LOSS:
For the fiscal year ended February 1, 1997, a net loss of
$1,167,087 resulted from:
1. Reduced sales levels in our Gulf Coast operation which
adversely effected operating results.
2. Relocation costs, expenses and write-offs experienced
with the move of our Produce division to larger facilities
during the fiscal year.
3. Higher effective interest rates and increased costs of
legal, audit, bank fees, courier and related costs associated with
the Company's default with its major lender during the second half
of the fiscal year.
4. An increased provision for bad debts and doubtful accounts.
For the fiscal year ended February 3, 1996, the net loss increased
by $2,679,227. Losses incurred as a result of the disposal of
assets relating to the egg division was the primary reason for the
increased losses. During fiscal year 1996, egg operations,
including the joint ventures which were disposed of during fiscal
1996, recorded a $1,628,000 loss versus a corresponding $451,000
profit for fiscal year 1995. Contributing to the loss were
approximately $420,000 of higher administrative costs mainly
associated with the management and disposition of the egg
operations and increased interest expense of $392,000.
Loss per common share for the fiscal years 1997, 1996 and 1995 was
as follows:
1997 1996 1995
Loss per common share ($.81) ($1.92) ($.06)
Average shares used in the
computation 1,447,902 1,438,952 1,437,165
LIQUIDITY AND CAPITAL RESOURCES:
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business.
As shown in the accompanying financial statements, during the
years
ended February 1, 1997 and February 3, 1996, the Company incurred
net losses of $1,167,087 and $2,761,305, respectively, and as of
February 1, 1997 the Company had a stockholders' deficit of
$758,476. These factors among others may indicate that the
Company
will be unable to continue as a going concern for a reasonable
period of time.
The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts
and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. As
described in Note F, the Company is not in compliance with several
provisions of its line of credit agreement and the lender has
placed significant operating and financing restrictions on the
Company pursuant to a forbearance agreement. The Company's
continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely
basis, to comply with the terms and covenants of its financing
agreements, to obtain additional financing or refinancing as may
be required, and ultimately to attain successful operations.
Management is continuing its efforts to obtain additional funds
from investors so that the Company can meet its obligations and
sustain operations.
There can be no assurance, however, that management's efforts will
ultimately be successful.
During fiscal 1997, the Company:
Was placed in default by its major lender as a result of over-
advances the lender made to the Company which were not secured by
assets of the Company. As a result of the default, the Company's
stated interest rate on this debt increased from 2.25% over the
prime rate in fiscal 1996 to 4.25% over the prime rate in fiscal
1997.
And its lender signed, on December 16, 1996, a Forbearance
Agreement which extends the existing line of credit until March
30, 1998, agrees to a repayment schedule that permits the Company
to operate and fund its business under certain limitations and
conditions and provides the lender additional collateral in the
form of its North Carolina and Virginia real estate.
Failed to make its regular semi-annual interest payments on the
Senior Subordinated Convertible Debentures. Although the Company
is in monetary default, its Bondholders have not indicated they
will place the Company in default. On the contrary, the
Bondholders are cooperating with the Company in the Company's
attempt to raise additional capital through a direct investment or
finding a qualified merger partner.
Did not fully satisfy the American Stock Exchange's guidelines for
continued listing. Accordingly, there can be no assurance that
the listing will be continued.
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 lender
increased the interest rate on the line of credit by an additional
quarter of one percent.
COMMITMENTS:
As of February 1, 1997, the Company had no commitments for capital
expenditures.
ITEM 8 - Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report 21
Consolidated Balance Sheets 22
Consolidated Statements of Operations 23
Consolidated Statements of Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 27
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Sun City Industries, Inc. and Subsidiaries
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets
of Sun City Industries, Inc. and Subsidiaries as of February 1,
1997 and February 3, 1996 and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the
three years in the period ended February 1, 1997. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Sun
City Industries, Inc. and Subsidiaries as of February 1, 1997 and
February 3, 1996, and the results of their operations and their
cash flows for each of the three years in the period ended
February 1, 1997 in conformity with generally accepted accounting
principles.
The accompanying financial statements for the year ended
February 1, 1997, have been prepared assuming that the Company
will continue as a going concern. As discussed in Note A to the
financial statements, the Company's recurring losses from
operations and net stockholders' deficiency raise substantial
doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in
Note A. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
May 16, 1997
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 1, February 3,
ASSETS 1997 1996
CURRENT ASSETS:
Cash and equivalents $ - $760,885
Accounts and notes receivable,
less allowance for doubtful accounts
of approximately $460,000 and $186,000
in 1997 and 1996, respectively 5,521,144 6,779,193
Inventories 2,334,987 2,755,593
Notes receivable - current portion 18,927 14,816
Prepaid expenses 218,838 210,029
TOTAL CURRENT ASSETS 8,093,896 10,520,516
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 108,133 108,133
Buildings and improvements 499,917 438,077
Machinery and equipment 2,243,175 2,017,272
TOTAL PROPERTY, PLANT AND EQUIPMENT 2,851,225 2,563,482
Less accumulated depreciation (1,319,437) (1,025,723)
PROPERTY, PLANT AND EQUIPMENT, NET 1,531,788 1,537,759
Properties held for sale 504,849 596,318
Long-term notes receivable 88,308 105,930
Excess of purchase price over fair value
of net assets acquired 1,780,836 1,615,611
Other assets 447,340 553,680
TOTAL $12,447,017 $14,929,814
February 1, February 3,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1997 1996
CURRENT LIABILITIES:
Cash overdraft $ 214,744
Accounts payable 5,003,332 $5,318,812
Accrued expenses 734,354 563,584
Current portion of long-term debt 1,720,129 496,056
TOTAL CURRENT LIABILITIES 7,672,559 6,378,452
DEFERRED COMPENSATION PAYABLE 123,106 99,028
LONG-TERM DEBT 5,409,828 8,096,798
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.10 par value 3,000,000
shares authorized; 2,276,116 shares
issued in 1997 and 1996 227,612 227,612
Capital in excess of par value 1,041,721 1,070,286
Retained earnings 837,751 2,004,838
2,107,084 3,302,736
Less: Treasury stock at cost, 828,214
and 837,164 shares in 1997 and 1996,
respectively (2,653,560) (2,682,200)
Less: Receivable for common stock sold
to ESOP (212,000) (265,000)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (758,476) 355,536
TOTAL $12,447,017 $14,929,814
See notes to consolidated financial statements.
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
February 1, February 3, January 28,
1997 1996 1995
SALES, net $68,245,383 $91,084,629 $69,351,205
COSTS AND EXPENSES:
Cost of sales 64,129,511 86,752,375 64,032,260
Selling, general and
administrative expenses 4,446,724 5,941,599 4,759,843
Interest expense 893,135 1,044,443 652,047
Other (income) expense, net (56,900) 107,517 (18,867)
___________ ____________ ___________
TOTAL COSTS AND EXPENSES 69,412,470 93,845,934 69,425,283
LOSS FROM OPERATIONS
BEFORE INCOME TAXES (1,167,087) (2,761,305) (74,078)
PROVISION FOR INCOME TAXES - - 8,000
__________ ____________ ___________
NET LOSS $(1,167,087) $(2,761,305) $ (82,078)
NET LOSS PER COMMON SHARE $(.81) $(1.92) $(.06)
See notes to consolidated financial statements.
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Treasury Stock
Shares Capital in Retained
Outstanding Amount excess of par Earnings Shares Amount ESOP
Balance,
Jan.29,
1994 2,276,116 $227,612 $1,070,286 $4,852,290 840,414 $2,692,220 $371,000
Exercise
of Stock Options (4,069) (3,250) (10,020)
Payment of ESOP loan (Note M) (53,000)
Net Loss (82,078)
Balance,
Jan.28,
1995 2,276,116 227,612 1,070,286 4,766,143 837,164 2,682,200 318,000
Payment of ESOP loan (Note M) (53,000)
Net Loss (2,761,305)
Balance,
Feb.3,
1996 2,276,116 227,612 1,070,286 2,004,838 837,164 2,682,200 265,000
Purchase of Treasury Shares 9,800 34,300
Exercise of Stock Options (28,565) (18,750) (62,940)
Payment of ESOP loan (Note M) (53,000)
Net Loss (1,167,087)
Balance,
Feb.1,
1997 2,276,116 $227,612 $1,070,286 $ 837,751 828,214 $2,682,125 $212,000
See notes to consolidated financial statements.
Sun City Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
February 1, February 3, January 28,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,167,087) $(2,761,305) $(82,078)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Depreciation and Amortization 521,174 822,516 645,004
Provision for losses on accounts
receivable 485,607 324,818 123,549
Loss on sale of fixed assets 33,546 153,885
Change in assets and liabilities net of
effects from acquisitions:
Accounts and trade notes receivable 772,442 (91,790) 119,786
Inventories 420,606 667,844 (300,026)
Prepaid expenses (8,809) 176,912 (2,674)
Other assets (232,498) 944,327 (262,047)
Accounts payable (315,480) 878,721 (611,577)
Accrued expenses 170,770 68,340 (103,128)
Income taxes payable - (8,000) (8,000)
Deferred compensation payable 24,078 (106,247) 114,400
TOTAL ADJUSTMENTS 1,871,436 3,831,326 (284,713)
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 704,349 1,070,021 (366,791)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 168,930 1,214,255
Capital expenditures (452,598) (589,232) (949,100)
Payment for acquisitions (350,000)
Repayment of notes receivable 13,511 14,621
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (270,157) 289,644 (949,100)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and
subordinated debt 275,384 556,052 1,462,479
Principal payments on notes payable (1,738,280) (1,661,440) (283,539)
Proceeds from loan receivable from ESOP 53,000 53,000 53,000
Proceeds from exercise of options 75 5,951
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (1,409,821) (1,052,388) 1,237,891
NET (DECREASE) INCREASE IN CASH AND
EQUIVALENTS (975,629) 307,277 (78,000)
CASH AND EQUIVALENTS,
Beginning of year 760,885 453,608 531,608
CASH AND EQUIVALENTS (CASH OVERDRAFT),
End of year $ (214,744) $ 760,885 $ 453,608
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 893,135 $1,044,443 $ 652,047
Income taxes $0 $0 $ 17,000
See notes to consolidated financial statements.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
During fiscal year 1996, the Company acquired Sheppard Food
Service, Inc. for $1,350,000. The cost in excess of the fair
value of the net assets acquired was $450,000. The following
is a summary of the net assets acquired:
Accounts Receivable $ 958,671
Inventories 777,652
Prepaid Expenses 16,496
Fixed Assets, net 5,779
Other Assets 3,100
1,761,698
Assumption of Liabilities (861,698)
Cash Paid $ 900,000
During fiscal year 1995, the Company determined the final
purchase price for the business purchased in fiscal year 1994.
The Company signed a note payable in the amount of $731,442
payable over the next five years.
During fiscal year 1995, the Company entered into a capital
lease agreement in the amount of $555,374 for an egg processor.
A. General:
Nature of Operations
Sun City Industries, Inc. (referred to herein as "Sun City" or the
"Company") and its subsidiaries distribute a broad line of food
and related products through operating centers in New Jersey,
Georgia and principally in Florida.
Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business.
As
shown in the accompanying financial statements, during the years
ended February 1, 1997 and February 3, 1996, the Company incurred
net losses of $1,167,087 and $2,761,305, respectively, and as of
February 1, 1997 the Company had a stockholders' deficit of
$758,476. These factors among others may indicate that the
Company
will be unable to continue as a going concern for a reasonable
period of time.
The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts
and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. As
described in Note F, the Company is not in compliance with several
provisions of its line of credit agreement and the lender has
placed significant operating and financing restrictions on the
Company pursuant to a forbearance agreement. The Company's
continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely
basis, to comply with the terms and covenants of its financing
agreements, to obtain additional financing or refinancing as may
be required, and ultimately to attain successful operations.
Management is continuing its efforts to obtain additional funds
from investors so that the Company can meet its obligations and
sustain operations.
There can be no assurance, however, that management's efforts will
ultimately be successful.
Significant Customer
The Company has one significant customer which accounted for 9.3%,
7.5% and 9.5% of net sales for the fiscal years 1997, 1996 and
1995, respectively. The Company believes that its vulnerability
to risk concentrations related to significant vendors and sources
of its raw materials is not significant. Risk of geographical
concentrations is also not significant.
B. Significant Accounting Policies:
1) Principles of Consolidation
The consolidated financial statements include the accounts of
Sun City Industries, Inc. and its wholly-owned subsidiaries. All
significant intercompany profits, transactions and balances have
been eliminated.
2) Use of Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
3) Cash and Equivalents
Cash and equivalents include cash on hand and short-term
investments purchased with a maturity of three months or less.
4) Inventories
All inventories are stated at the lower of cost (using the
first-in, first-out and weighted average methods) or market.
5) Investment in Joint Ventures
Investments in the Company's egg producing joint ventures are
recorded at cost. Amounts received as distributions of the
operations of these joint ventures are recorded as recoveries of
such cost. Any gains from the final settlement of these joint
ventures are recorded only after all cost is recovered; any losses
are accrued at the time such losses can be reasonably estimated.
During fiscal 1996, the Company disposed of its interests in
these joint ventures.
6) Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation is computed utilizing the straight-line method over
the estimated useful lives of the assets as follows:
Land improvements 10 to 20 years
Buildings 17 to 33 1/3 years
Building improvements 3 to 20 years
Machinery and equipment 3 to 20 years
Gains and losses arising from disposals of properties are
included in current operations.
7) Unamortized Costs in Excess of Net Assets Acquired
Costs in excess of net assets acquired ("Goodwill") are being
amortized using the straight-line method over 20 to 25 years.
Amortization of Goodwill was $87,173 and $74,890 for the years
ended February 1, 1997 and February 3, 1996, respectively. The
Company reviews Goodwill for impairment whenever events or changes
in circumstances indicate that its carrying amount may not be
recoverable. The amount of impairment, if any, in unamortized
Goodwill is measured based on projected future results of
operations. Actual results could differ from those estimates and
the differences could be material. Management believes that there
has been no impairment in the carrying amount of Goodwill.
8) Fair Value of Financial Investments
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosure about Fair Value of Financial Instruments," requires
disclosure of the fair value of financial instruments, both assets
and liabilities, recognized and not recognized in the consolidated
balance sheets of the Company, for which it is practicable to
estimate fair value. The estimated fair values of financial
instruments which are presented herein have been determined by the
Company using available market information and appropriate
valuation methodologies. However, considerable judgement is
required in interpreting market data to develop estimates of fair
value. Accordingly, the estimates presented herein are not
necessarily indicative of amounts the Company could realize in a
current market exchange.
The following methods and assumptions were used to estimate
fair value:
- the carrying amounts of cash and equivalents, receivables
and accounts payable approximate fair value due to their short
term nature;
- the carrying amounts of short-term and long-term debt
approximate fair value as the majority of such debt bears interest
based on either a market interest rate or variable interest rate.
9) Long-Lived Assets
The Company has adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", in fiscal year 1997. This standard requires that
long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The adoption of this standard did
not have a significant effect on the Company's consolidated
results of operations or financial position.
10) Stock-Based Compensation
The Company currently accounts for its stock-based
compensation plans using the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25").
In 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation". Under the
provisions of SFAS No. 123, companies can elect to account for
stock-based compensation plans using a fair value based method or
continue measuring compensation expense for those plans using the
intrinsic value method prescribed in APB 25. SFAS No. 123
requires that companies electing to continue using the intrinsic
value method must make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting
had been applied. The adoption of SFAS No. 123 had no material
effect in the Company's 1997 consolidated financial statements.
11) New Accounting Pronouncement
In March 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share". SFAS No. 128 supersedes
Accounting Principles Board Opinion No. 15 and simplifies the
accounting standards used in calculating earnings per share. SFAS
No. 128 requires that basic earnings per share be calculated by a
numerator of income available to common shareholders divided by a
denominator of weighted-average shares outstanding. Diluted
earnings per share is calculated by a numerator of income
available to common shareholders plus effects of convertible
securities divided by a denominator of weighted-average shares
outstanding plus potential common shares. SFAS No. 128 will apply
to the Company for the year ended January 31, 1998. The Company
does not believe the adoption of SFAS No. 128 will have a material
effect on the Company's earnings per share.
12) Income Taxes
The Company recognizes certain income and expenses in
different periods for financial reporting and income tax purposes
in accordance with SFAS No. 109, "Accounting for Income Taxes".
13) Reclassifications
Certain amounts in the prior year financial statements have
been reclassified to conform to the current year's presentation.
C. Accounts and Notes Receivable:
Trade accounts and notes receivable consist of the following:
Receivables: 1997 1996
Trade $5,400,416 $6,395,496
Other 580,728 569,597
5,981,144 6,965,093
Less: Allowance for
doubtful accounts (460,000) (185,900)
$5,521,144 $6,779,193
The following is an analysis of the allowance for doubtful
accounts for the fiscal years 1997 and 1996:
1997 1996
Balance, beginning of year $185,900 $178,619
Provision for doubtful
accounts 485,607 324,818
Uncollectible accounts
written off (211,507) (317,537)
Balance, end of year $460,000 $185,900
The long-term note receivable consists of a mortgage note
bearing interest at 9% payable monthly. As of February 1, 1997,
the carrying amount of the note receivable approximated its fair
value.
Substantially all receivables are pledged as collateral for
certain debt (see Note F).
D. Inventories:
The major components of inventories are as follows:
1997 1996
Dairy and related products $1,424,884 $1,818,022
Produce 291,804 318,717
Seafood 618,299 618,854
Total $2,334,987 $2,755,593
Substantially all inventories are pledged as collateral for
certain debt (see Note F).
E. Other Assets:
Other assets consist of the following components:
1997 1996
Officers' Life Insurance $173,084 $128,181
Organizational Costs 100,448 143,628
Recoverable Deposits 70,010 114,612
Other 103,798 167,259
Total $447,340 $553,680
The Company pays the premiums on certain life insurance
policies that insure the lives of key executives and are payable
to the executives' designated beneficiaries in the event of their
deaths. The policies, with a total face amount of $1,925,000
have been assigned to the Company to the extent necessary to repay
all premiums.
In addition, the Company pays the premiums for other
executives' policies as a means to fund certain deferred
compensation obligations.
F. Debt:
Debt consists of the following:
1997 1996
$7,500,000 line of credit, expires
March 1998, interest at 4.25% over
prime (12.50% at February 1, 1997)
payable daily based upon accounts
receivable collections, collateralized
by the Company's accounts receivable,
inventory, machinery and equipment. $4,728,697 $5,950,000
Mortgage note payable, interest at
9.5% payable quarterly, due in April
1997, collateralized by property. 24,527 117,074
Notes payable, interest at 9.5%
collateralized by machinery and
leasehold improvements. 0 102,200
Notes payable to former Gulf Coast
shareholders, interest at 7.75%
payable in quarterly installments
commencing March 1996 through
December 1999. 558,865 745,154
Notes payable, interest at 8.0% payable
monthly, due in installments through
December 1998, collateralized by
computer system. 15,521 22,056
Notes payable, bearing interest
between 8.5% and 10.25% payable monthly,
due in installments through November
1999, collateralized by trucks and
equipment. 387,802 236,624
1997 1996
Notes payable, interest at 1.5% over
prime, payable monthly, due in
installments through December 1998,
collateralized by equipment. 14,545 19,746
Five year, Senior Subordinated
Convertible Debentures, interest
at 8% payable semi-annually,
convertible into common stock at
$3.25 per share. 700,000 700,000
Five year, Senior Subordinated
Convertible Debentures, interest
at 9% payable semi-annually,
convertible into common stock at
$5.125 per share. 700,000 700,000
Total debt 7,129,957 8,592,854
Less current portion 1,720,129 496,056
Total long-term debt $5,409,828 $8,096,798
The above mortgage and line of credit contain certain restrictive
covenants, the more significant of which require the Company to
maintain certain minimum levels of working capital and net worth.
During fiscal 1997, the Company obtained loans from its principal
lender in excess of the amounts allowed under the related
agreements and defaulted on other covenants and provisions of the
related lending agreements. On December 16, 1996, the Company and
its principal lender executed a Forbearance Agreement pursuant to
which the principal lender agreed to forbear from exercising its
rights and remedies as a consequence of the defaults until the
earlier of March 30, 1998 or the occurrence of any other event of
default. The provisions of the Forbearance Agreement require
that: (a) the Company remit all collections on accounts receivable
to the principal lender, (b) the overadvance resulting from the
excess loans (which amount aggregated $350,000 at February 1,
1997) be repaid in installments of $10,000 per week, (c) the
interest rate for all obligations to the principal lender be
increased to 4.25% over the prime rate, (d) the Company provide
the lender real estate mortgages and deeds of trust encumbering
certain real estate owned by the Company, and (e) the Company
obtain the consent of the principal lender prior to making any
payments on obligations relating to certain of the Company's
acquisitions, among other restrictions and requirements.
The Company failed to make the required semi-annual interest
payment on the $1,400,000 Senior Subordinated Convertible
Debentures. As a consequence of this ongoing default, these
debentures are classified as current liabilities. The Company has
accrued the related interest payable.
The above carrying cost approximates the fair market value of long-
term debt as of February 1, 1997.
The aggregate maturities of long-term debt are as follows:
Fiscal year ending
1998 $1,720,129
1999 5,023,970
2000 230,649
2001 28,800
Thereafter 126,409
Total $7,129,957
G. Income Taxes:
The Company provides for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes". Under SFAS No. 109, 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 provision for income taxes is comprised of the following:
1997 1996 1995
Current State Tax $ 0 $ 0 $8,000
The net deferred tax balance at February 1, 1997 consisted of:
Assets Liabilities Total
Tax loss carryforwards $2,110,560 $2,110,560
Accelerated depreciation for
tax purposes $(105,988) (105,988)
Allowance for bad debts 174,807 174,807
Capitalization for tax purposes
of inventory related costs 17,861 17,861
Deferred compensation 46,780 46,780
Other (29,881) (29,881)
Less: Valuation allowance (2,214,139) (2,214,139)
Total $ 135,869 $(135,869) $ 0
The net deferred tax balance at February 3, 1996 consisted of:
Assets Liabilities Total
Excess tax amortization
for non-compete agreement $19,267 $19,267
Tax loss carryforwards 1,589,710 1,589,710
Accelerated depreciation for
tax purposes $ (95,661) (95,661)
Allowance for bad debts 63,212 63,212
Capitalization for tax purposes
of inventory related costs 20,401 20,401
Deferred compensation 120,757 120,757
Other (14,905) (14,905)
Less: Valuation allowance (1,702,781) (1,702,781)
Total $ 110,566 $(110,566) $ 0
Reconciliations of the effective income tax rates to the U.S.
statutory rates are summarized as follows:
1997 1996 1995
Statutory rate (34.0%) (34.0%) (34.0%)
Increase (reduction) in
valuation allowance 34.0 35.2 26.0
State income taxes 7.1
Other (1.2) 11.7
Total 0% 0% 10.8%
The Company estimates that, after filing its 1997 tax return, it
will have tax loss carryforwards of approximately $5,500,000
expiring in the years 2009 through 2012.
H. Commitments:
The Company leases land, building and equipment under operating
leases.
As of February 1, 1997, the Company's future minimum rental
payments and sublease rental income for leases having an initial
lease term in excess of one year were as follows:
Delivery
Buildings and other Sublease
Fiscal Years ending and land equipment Income
1998 $ 573,054 $226,183 $ 60,000
1999 397,886 127,781 60,000
2000 252,704 1,187 60,000
Total $1,223,644 $355,151 $180,000
The above amounts include rentals under renewal options where
management contemplates, with a high degree of assurance, that the
option will be exercised. Lease terms require, in certain
instances, that the Company pay property taxes, insurance, mileage
charges and maintenance cost on the leased property. Rent expense
for the years ended February 1, 1997, February 3, 1996 and
January 28, 1995 was $895,880, $1,062,407 and $917,422,
respectively, excluding mileage and other executory costs. These
expenses are included in selling, general and administrative
expenses in the accompanying consolidated statements of
operations. For the year ended February 1, 1997 and February 3,
1996, sublease income was $67,500 and $67,175. There was no
sublease income in fiscal year 1995.
During 1995, the Company entered into an employment agreement with
Gregg M. Leslie pursuant to which the employee is paid an annual
salary of $15,000 plus one-third of Sun City Produce, Inc.'s net
income before taxes. The initial term of the agreement ends on
June 30, 2000. For the fiscal year ended 1997 and 1996, salary
expense under this employment agreement was $162,199 and $79,834,
respectively. As of February 1, 1997, advances to this employee
in excess of his earnings were approximately $71,000. If the
Company terminates Mr. Leslie without cause, as defined, the
Company shall be obligated to pay Mr. Leslie severance
compensation in an amount equal to one-third of an amount computed
as five times the average net income before income taxes of Sun
City Produce, Inc. for the two immediately preceding fiscal years.
Also, Mr. Leslie has the option to forego such severance
compensation and purchase all of the capital stock of Sun City
Produce, Inc. from the Company. The purchase price is two-thirds
of an amount computed as five times the average net income before
income taxes of Sun City Produce, Inc. for the two immediately
preceding fiscal years plus the book value of Sun City Produce,
Inc. on the closing date.
I. Stockholders' Equity:
1982 Stock Option Plan - In June 1982, the stockholders approved an
incentive stock option plan for officers, directors, and key
employees. Under the plan, options for 262,500 common shares may
be granted to purchase common shares at no less than 100% of the
fair market value at date of grant.
1994 Stock Option Plan - In June 1994, the stockholders approved
another incentive stock option plan for officers, directors, and
key employees. Under the plan, options for 225,000 common shares
may be granted to purchase common shares at not less than 100% of
the fair market value at the date of grant.
Options terminate, except to a limited extent, in the event of
retirement, disability, death of the optionee or termination of
employment. Options granted under these plans are exercisable at
various amounts per share and become exercisable at the rate of
20% each year beginning one year after date of grant and expire
ten years after date of grant.
Activity relating to this option plan is summarized as follows:
1982 Plan 1994 Plan
Outstanding at 1/29/94 240,750 $1.833-3.50 -
Granted 20,000 3.00 -5.00 75,000 $3.875
Exercised (3,250) 1.833
Forfeited (1,500) 1.833
Outstanding at 1/28/95 256,000 1.833-5.00 75,000 3.875
Granted - 45,000 4.125-5.125
Exercised - -
Forfeited (42,500) 1.833-2.875
Outstanding at 2/3/96 213,500 1.833-5.00 120,000 3.875-5.125
Granted - -
Exercised (18,750) 1.833 -
Forfeited (12,500) 3.00-5.00 (10,000) 5.125
Outstanding at 2/1/97 182,250 $1.833-5.00 110,000 $3.875-5.125
At February 1, 1997, February 3, 1996 and January 28, 1995, options
for 217,750, 213,000 and 166,300 shares, respectively, were
exercisable.
J. Acquisitions:
Effective February 27, 1995, the Company acquired substantially all
the assets and liabilities of Sheppard Distributors, Inc.
("Sheppard") which was accounted for using the purchase method of
accounting. Sheppard is a foodservice company serving a broad
range of customers. Product lines include seafood, meats,
poultry, produce and various frozen foods. The initial purchase
price consisted of the acquisition of $1,761,698 in assets,
payable $900,000 in cash and the assumption of $861,698 in
liabilities. The results of operations of Sheppard are included
in the consolidated statement of operations from the date of
acquisition.
The following unaudited pro-forma consolidated results of
operations for fiscal 1996 give effect to the acquisition of
Sheppard as though it had occurred on January 29, 1995:
Sales and operating revenues $91,876,376
Net loss ($2,797,860)
Loss per common share $(1.94)
The unaudited pro-forma information is not necessarily indicative
of results of operations that would have occurred had the purchase
been made at January 29, 1995, or of future results of operations
of the Company.
The initial purchase price was funded through borrowings under the
Company's revolving credit and term loan agreement. The Company
is obligated to pay an additional amount to the sellers based on
net profits earned by this division computed as four and one-half
times the average annual net profit up to $400,000, and five and
one-half times the average annual net profit over $400,000,
generated by this division over the three year period beginning on
the acquisition date. This amount is payable in annual increments
of twenty-five percent of the net aggregate price at the end of
the first and second years after closing, fifty percent of the
recomputed net aggregate price at the end of the third year after
closing and the balance payable one year after the final
computation, secured by fixed assets and guaranteed by the
Company. During fiscal 1997, the Company paid $252,500 based upon
this calculation and recorded this amount as an addition to excess
of purchase price over fair value of net assets acquired. The
total estimated remaining payments will be approximately $750,000.
The excess of the purchase price over the fair value of the
tangible and identifiable intangible net assets acquired is being
amortized over twenty-five years using the straight-line method.
K. Disposal of Assets:
During fiscal 1996, management implemented several strategic
measures. These measures included the disposition of three egg
operations and related egg production joint venture investments.
In September 1995, the Company disposed of its Spring Grove,
Pennsylvania egg operations and related joint venture investment.
In December 1995, the Company disposed of its Burgaw, North
Carolina egg operations and related joint venture investment and
in January 1996, the Company disposed of its Jarratt, Virginia egg
operations.
As a result of these sales and the operating losses sustained by
these operations during fiscal 1996, the Company recorded losses
of approximately $1,600,000 of which approximately $720,000
resulted from the disposition of approximately $3,100,000 of
assets. During the year these operations generated approximately
$19,900,000 in sales revenues.
L. Loss Per Common Share:
Loss per common share is based on the weighted average number of
common shares outstanding.
The average shares used in calculating loss per common share were
1,447,902, 1,438,952 and 1,437,165 for years ending February 1,
1997, February 3, 1996 and January 28, 1995, respectively.
Common stock equivalents were excluded from the calculation of
loss per common share for the years ending February 1, 1997,
February 3, 1996 and January 28, 1995 because the effect would
have been antidilutive.
M. Employee Benefit Plans:
The Company has established an Employee Stock Ownership Plan
("ESOP") to acquire shares of the Company's stock for the future
benefit of its employees. The ESOP covers all permanent
employees who satisfied the age and length of service
requirements. Contributions to the Plan are made at the
discretion of the Board of Directors. During fiscal 1997, 1996
and 1995, the Company contributed $91,000, $120,000 and
$120,000, respectively, to the ESOP.
During fiscal 1991, the Company sold 187,500 shares of its common
stock to the ESOP for $531,125 financed with a ten year $530,000
term loan with interest at the same rate charged to the Company
by its primary lender.
N. Segment Reporting:
The Company is principally engaged in the business of
distributing basic food products. Revenues from the Company's
customers, which includes national and regional supermarket
chains, were as follows for the three fiscal years:
1997 1996 1995
Foodservice 90.7% 71.4% 59.2%
Egg division & other 9.3% 28.6% 40.8%
O. Legal Matters:
The Company is engaged in ordinary routine litigation incidental
to its business. The Company does not believe that the ultimate
outcome of such litigation will have a material adverse effect
on its consolidated financial position or results of operations.
ITEM 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
None.
PART III
Pursuant to General Instruction G (3) of Form 10-K, the
information called for by Items 10,11,12, and 13 of this Part
III is hereby incorporated by reference from the Registrant's
definitive proxy statement relating to Registrant's Annual
Meeting of Stockholders to be held on June 26, 1997 (hereinafter
referred to as the "Proxy Statement"). The aforementioned
information shall be set forth under the following captions in
the Proxy Statement:
ITEM 10 - Directors and Executive Officers of the Registrant
See "Election of Directors", "Nominees; Current Board
Members" "Executive Officers", and "Compliance with Section 16
(a) of the Exchange Act".
ITEM 11 - Executive Compensation
See "Executive Compensation and Other Information: and
"Information Concerning the Board of Directors and its
Committees - Directors' Compensation".
ITEM 12 - Security Ownership of Certain Beneficial Owners and
Management
See "Certain Information as to Security Ownership",
"Security Ownership of Management", and "Outstanding Stock and
Voting at the Meeting".
ITEM 13 - Certain Relationships and Related Transactions
See "Certain Relationships and Related Transactions".
PART IV
ITEM 14a - Exhibits, Financial Schedules and Reports on Form 8-K
The following documents are filed with, and as part of, this
Annual Report on Form 10-K.
(1) Consolidated Financial Statements
The Index to the consolidated financial statements
has been included as part of Item 8 hereof.
(2) Schedules
All financial statement schedules are omitted
because of the absence of the conditions under which they are
required, or because all information required to be reported is
included in the Consolidated Financial Statements or notes
thereto.
(3) Exhibits
See Exhibits Index below.
EXHIBITS INDEX
No.(3) Articles of Incorporation and By-laws.
There have been no changes in the articles of
incorporation or by-laws since our filing with the Securities and
Exchange Commission, Washington, D.C. under the Securities Act of
1933 in the June 1966 registration statement, 2-24901.
No.(4) Instruments defining the rights of security holders,
including indentures.
There are no obligations in existence that would require
disclosure of such instruments.
No.(9) Voting trust agreement.
No.(10) Material contracts.
During the current year, there were no material
contracts.
No.(11) Statement re: Computation of per share earnings.
Not applicable.
No.(12) Statement re: Computation of ratios.
The Company has no requirement for the reporting of
such ratios.
No.(13) Annual report to security holders, Form 10-Q or
quarterly report to security holders.
All such reports have been filed with the Securities and
Exchange Commission, Washington, D.C. for all periods, including
the year ended February 3, 1996.
No.(16) Letter re: Changes in certifying accountant.
There have been no letters regarding change in
certifying accountant.
No.(18) Letter re: Change in Accounting Principles.
There have been no changes in accounting principles.
No.(19) Previously Unfiled Documents.
There are no unfiled documents.
No.(22) Subsidiaries of the Registrant.
Filed as Exhibit number 1, Form 8, Amendment number 2,
fiscal year ended January 31, 1986.
No.(23) Published report regarding matters submitted to vote of
security holders.
All such reports requiring vote by security holders are
filed with the Securities and Exchange Commission, including in
our Annual Proxy for security holders.
At the last annual meeting of security holders, the vote
was for the election of the Board of Directors and appointment of
Auditors, both of which were uncontested.
No.(24) Consents of Experts and Counsel.
All such consents have been filed with the Securities and
Exchange Commissions as follows:
Auditors: Each Annual Report, Form 10-K and the
Registration Statements of June 1966 and February 1972.
Counsel: Included in the Registration Statements of June
1966 and February 1972.
No.(25) Power of Attorney.
Power of attorney has not been used in any filing with
the Securities and Exchange Commission.
No.(28) Additional Exhibits.
There are no additional exhibits to be filed.
No.(29) Information from reports furnished to state insurance
regulatory authorities.
There are no such reports required to be filed.
ITEM 14b - Reports on Form 8-K
On October 3, 1995, the registrant filed Form 8-K for the
disposition of the business assets of Nearby Eggs, Inc. (Pa.) and
certain egg production joint ventures.
On January 3, 1996, the registrant filed Form 8-K for the
disposition of the business assets of Carlisle Poultry and Egg
Associates, Inc. and Nearby Eggs, Inc. (Va.) and the remaining egg
production joint ventures.
On August 7, 1996, the registrant filed Form 8-K to disclose
the Company's default with its primary lender.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, Sun City Industries, Inc. has
duly caused this report to be signed on its behalf by the
undersized, thereunto duly authorized.
Malvin Avchen
May 19, 1997
Malvin Avchen
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated:
Signature Title Date
Malvin Avchen
Chief Executive Officer May 19, 1997
Malvin Avchen and Director
Gustave Minkin
President and Director May 19, 1997
Gustave Minkin
Syed Jafri
Treasurer and Controller May 19, 1997
Syed Jafri
Saul Zalka
Chief Operating Officer May 19, 1997
Saul Zalka and Director
<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.I. 02-01-97 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR END> FEB 01-1997
<PERIOD-START> FEB 04-1996
<PERIOD-END> FEB 01-1997
<EXCHANGE-RATE> 1
<CASH> (214,744)
<SECURITIES> -0-
<RECEIVABLES> 6,000,071
<ALLOWANCES> 460.000
<INVENTORY> 2,334,987
<CURRENT-ASSETS> 8,093,896
<PP&E> 2,851,225
<DEPRECIATION> 1,319,437
<TOTAL-ASSETS> 12,447,017
<CURRENT-LIABILITIES> 7,672,559
<BONDS> 5,409,828
<COMMON> 227,612
-0-
-0-
<OTHER-SE> (986,088)
<TOTAL-LIABILITIES-EQUITY> 12,447,017
<SALES> 68,245,383
<TOTAL-REVENUES> 68,245,383
<CGS> 64,129,511
<TOTAL COSTS> 69,412,470
<OTHER-EXPENSES> 5,282,959
<LOSS-PROVISION> 485,607
<INTEREST-EXPENSE> 893,135
<INCOME-PRETAX> (1,167,087)
<INCOME-TAX> -0-
<INCOME-CONTINUING> (1,167,087)
<DISCONTINUED> -0-
<EXTRAORDINARY> -0-
<CHANGES> -0-
<NET-LOSS> (1,167,087)
<EPS-PRIMARY> (.81)
<EPS-DILUTED> (.81)
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