ITEM 1 - Business
As a result of a 1990 Stock Redemption, a new Executive Management team took over operating control of Sun City Industries, Inc. (the "Company"). The Executive Team developed a business plan and began its implementation during fiscal year 1993. The plan concentrates the Company's efforts on the Company's foodservice operations where Management believes opportunities exist for growth through mergers and acquisitions as well as geographical and product line expansion.
General Development of the Business
a) The Company was incorporated in Delaware in July 1961 as Sun City Dairy Products, Inc., successor to a business founded in 1949; the present name being adopted in May 1969 which has developed into a leading marketer of eggs, butter, cheese, poultry and related products through internal growth and acquisitions .
In March 1969, the Company acquired Certified Poultry & Egg Co. for $240,000 in cash; Oak Crest Enterprises, Inc. and Oak Crest Hatcheries, Inc. for an aggregate of 80,000 shares of the Company's $.10 par value Common Stock.
On November 6, 1970, the Company acquired Nearby Producers Egg & Poultry Marketing Corp. and Carlisle Poultry & Egg Associates, Inc. for $81,083 and 118,504 shares of the Company's $.10 par value Common Stock.
On August 3, 1987 the Company acquired the inventory and certain other assets, including the trade name, from Hess Foods of Lancaster County, Pa. for $250,000.
On February 4, 1991, the Company acquired the businesses of William F. O'Brien Inc. and Diversified Foods, Inc. of Fort Lauderdale, Florida for $490,200 in cash and the assumption of certain liabilities.
On August 12, 1991, the Company acquired the business of Gilley's Sausage Co., Inc. of Winston, Georgia for $116,300 in cash and the assumption of certain liabilities.
On December 6, 1993, the Company acquired the business and assets of Gulf Coast Food Distributors, Inc. for $796,895 in cash and the assumption of certain liabilities.
b) The Company is engaged in the processing and marketing of shell eggs and in the foodservice division in which the Company distributes butter, eggs, cheese, poultry, and with the acquisition of Gulf Coast, has added produce, meats, seafood, groceries and paper goods.
In the Egg Division, the Company's customers are national and regional supermarkets, local grocery and convenience stores and U.S. military installations and bases. In the Foodservice Division, the Company's customers are regional hotels, restaurants, schools, hospitals, prisons, caterers and cruise ship lines.
The Company's lines of business include the sale of eggs (shell, frozen and pasteurized) butter, cheese (hard, soft, domestic and imported) poultry, sausage provisions, produce, meats and groceries. Other than eggs, no single line of business has accounted for more than 10% of the Company's total annual revenues, in any of the last three fiscal years.
c) The business of the Company is conducted through its wholly- owned subsidiaries which are engaged principally in the business of processing and marketing shell eggs and the distribution of eggs, butter, cheese, poultry, sausage provisions, produce, meats, groceries and other products. Unless the context indicates otherwise, references to the Company in this Report include the Company's subsidiaries.
1) The Company purchases shell eggs from producers located in the states of Florida, Georgia, Maine, New York, North Carolina, Indiana, Illinois, Ohio, Pennsylvania, Maryland and South Carolina. Through its trained personnel, the Company inspects farms from which unprocessed eggs are purchased to ensure that the Company's quality control standards are complied with by the producers. The shell eggs purchased are then processed by the Company's plants located in the States of Virginia, North Carolina, and Maryland.
The shell eggs processed and purchased by the Company are sold to customers in the states of Connecticut, Delaware, Florida, Georgia, Maryland, Michigan, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Virginia, West Virginia and the District of Columbia. The Company's customers include national and regional supermarket chains, independent supermarkets, hospitals, hotels, restaurants, educational institutions, cruise ship lines, airline caterers, educational and government facilities.
In Florida, New York, New Jersey, Pennsylvania, Georgia, Maryland and Washington, D.C. the Company sells butter, eggs, cheese, poultry and similar products. None of the products mentioned in this paragraph, except eggs, has represented more than 10.0% of the Company's consolidated sales in any of the last three fiscal years. Sales 1/29/94 1/31/93 1/31/92 Egg division 47.9% 48.3% 52.8%
Foodservice 51.7% 51.0% 46.7%
Other marketing 1.4% .7% .5%
During the Company's fiscal years ended January 29, 1994, and January 31, 1993 and 1992, the Company's shell egg sales accounted for 64%, 62% and 67% of its revenues, respectively. The Company processes a substantial portion of all the shell eggs it purchases. Consequently the Company does not determine, and is unable to approximate meaningfully, the portion of its total shell egg income attributable to the Company's shell egg processing and marketing operations.
2) Description of segments in development stages-None.
3) Sources and Availability of Raw Materials - The Company believes that its relationships with its suppliers are good and that alternative supplies of eggs are generally available. However, in order to realize the maximum potential in its egg processing-marketing division during fiscal 1993, the Company commenced a program of upgrading the quality and quantity of its egg supply by making investments in various egg producing joint ventures. Although the size of each investment varies between 15% and 25%, the Company will receive 100% of the eggs produced by these joint ventures. (See Management's Discussion and Analysis - Liquidity and Capital Resources"). The Company generally purchases its shell eggs from a large number of producers including its joint ventures, located in the general vicinity of the Company's processing plants and distribution centers. During fiscal 1994 the Company purchased 27.5% of the total eggs purchased from its own joint ventures, 13.2% from Braswell Milling in North Carolina; 10.9% from Agri-General of Croton, Ohio and 9.7% from Bowman Egg Farms of Westminster, Md. During fiscal 1993 and 1992 respectively the Company purchased 21.1% and 18.0% from Bowman Egg Farms; 21.0% and 15.5% from Braswell Milling and 12.0% and 11.8% from Agri-General. The remaining 38.7%, 45.9% and 54.7% of the eggs marketed by the Company were purchased from a large number of other producers located in the general vicinity of the Company's plants. For the fiscal years 1994, 1993 and 1992 no other single independent producer amounted to more than 10.0% of the Company's egg purchases. 4) Patents, trademarks, licenses, franchises held - None.
5) There are no significant seasonal effects on the Company's consolidated business.
6) As a result of the Company's ability to turn its resale inventory forty-two (42) times during the fiscal year ended January 29, 1994 and maintain its outstanding average receivables at the twenty-five (25) day level, the Company's current need for additional working capital arises principally when egg markets experience sharp increases, and or when unit sales expand during certain periods of the year.
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 January 29, 1994, and January 31, 1993 and 1992, sales to the Company's major customer were 10.4%, 11.2% and 13.6% respectively of consolidated sales; and sales to the next leading customer were 4.6%, 4.8% and 5.1%, 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 January 29, 1994, approximately 51% of Company's total sales were made to about 1,900 institutional customers located in the states of Florida, Georgia, Pennsylvania, New Jersey, New York, Washington D.C. and Maryland. During fiscal years ended January 31, 1993 and 1992, these sales amounted to 52% and 47%, respectively.
8) The Company has no backlog of orders.
9) Government contracts subject to renegotiation or termination - None.
10) The shell egg industry is both highly competitive and comprised of a large number of competing entities. The Company's management believes that the Company is a significant factor in shell egg marketing on the Eastern Seaboard. The Company's lines of business other than its shell egg line of business are also highly competitive industries comprised of a large number of competing entities. The Company's management does not believe that the Company is a significant factor in any of its nonshell egg lines of business.
11) The Company had no expenditures for research and development during the fiscal years ended January 29, 1994 and January 31, 1993 and 1992.
12) The Company has not had to make any material expenditures in connection with compliance with environmental regulations.
13) During fiscal 1994 the Company (including its wholly-owned subsidiaries) had 282 employees. It had 374 and 445 employees at the end of fiscal years 1993 and 1992, respectively.
d) Virtually all of the Company's sales have been domestic for the current and past two fiscal years.
ITEM 2
ITEM 2 - Description of Property
Location Owner/Tenant Facilities
1. Miami, Owner Plant complex comprising approx- Florida imately 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 203 acre farm complex Florida consisting of 25 acres of lakefront property including three residences; one of 3,350 sq. ft. and two of 1,560 sq. ft. each; 4.85 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. refrigerated facility. During the first quarter of fiscal 1993 all operations were discontinued and the property was listed for sale.
3. Burgaw, Owner Plant complex comprising approx- North Carolina imately 18,300 sq. ft. of land and improvements of which 12,100 sq. ft. is for general operations, 5,200 sq. ft. is refrigeration, 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. This facility is adequate and being fully utilized.
4. Jarratt, Owner Plant complex comprising approx- Virginia imately 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. This facility is adequate and being fully utilized.
5. Orlando, Tenant Plant complex comprising approx- Florida imately 7,200 sq. ft. of warehouse. The Company is a tenant at a monthly rental of $1,590 under a lease expiring on May 31, 1994. This facility is adequate and being fully utilized.
6. Westminster, Tenant Plant complex comprising approx- Maryland imately 28,000 sq. ft. of which 20,000 sq. ft. is warehouse and storage, 7,300 sq. ft. is refrigeration and 700 sq. ft. is office space. The Company is a tenant at a monthly rental of $2,625 under a lease expiring September 30, 1994. This facility is adequate and being fully utilized.
7. New Holland, Tenant Plant complex comprising approx- Pennsylvania imately 12,466 sq. ft. of warehouse, coolers and offices. The Company is a tenant at a monthly rental of $3,405 under a lease expiring on August 31, 1994. This facility is adequate and being fully utilized.
8. Rochelle Park, Tenant Plant complex comprising approx- New Jersey imately 10,000 sq. ft. of warehouse, coolers and offices. The Company is a tenant at a net monthly rental of $6,250 expiring on December 31, 1995. This facility is adequate and being fully utilized.
9. Fort Lauderdale,Tenant Plant complex comprising 15,556 sq. ft. Florida 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 monthly rental of $8,146, under a lease expiring in May 31, 1999. This facility is adequate and is being fully utilized.
10. Atlanta, Owner Plant complex comprising approx- Georgia imately 5,000 sq. ft. of coolers, freezers and office space on approximately 2.5 acres of land. This facility is adequate and is being fully utilized.
11. Port Richey, Tenant Plant complex comprising approx- Florida imately 30,000 sq. ft. of which 10,000 sq. ft. is refrigerated, 7,000 refrigerated dock area, 11,500 sq. ft. dry warehouse and 1,500 sq. ft. is office space. The Company is a tenant at a monthly rent of $5,600 until December 1994 and $9,000 a month until December 1996. This facility is adequate and being fully utilized.
ITEM 3
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
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 January 29, 1994: Name Age Position and Date Commenced
Malvin Avchen 60 Chief Executive Officer since April 1990
Gustave Minkin 62 President and Secretary since April 1990
Saul Zalka 59 Chief Operating Officer since April 1990
Vance Weibley 57 Executive Vice President since April 1990
Syed Jafri 49 Treasurer and Controller 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. Vance Weibley served as Vice President of Egg operations from 1971 to April 1990.
Mr. Syed Jafri served as Controller from 1975 to present.
PART II
ITEM 5
ITEM 5 - Market For Registrant's Common Stock and Related Stockholder Matters
a) The Company's Common Stock is listed and traded on the American Stock Exchange under the ticker symbol SNI. The sales prices for the Common Stock for each full quarterly period within the two most recent fiscal years were as follows:
Fiscal 1994 Fiscal 1993 Cash Cash Quarter HIGH LOW DIVIDENDS QUARTER HIGH LOW DIVIDENDS 1 $3.38 $3.00 NONE 1 $5.25 $4.25 NONE 2 3.13 2.63 NONE 2 4.88 4.00 NONE 3 2.88 2.63 NONE 3 4.13 3.50 NONE 4 2.94 2.63 NONE 4 4.00 3.00 NONE
b) There were approximately 157 stockholders of record on April 21, 1994. This total does not include stockholders listed with brokers or their agents in street name.
c) As of April 21, 1994, both the high and low sales prices for the Common Stock were $3.69.
ITEM 7
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 financial statements and notes thereto appearing elsewhere herein. COMPANY PROFILE:
Sun City Industries, Inc. (the "Company"), is a leader in the processing and marketing of eggs along the eastern seaboard of the U.S.
The Company which began in 1949 is engaged in the processing and marketing of shell eggs and provides foodservice marketing and distribution throughout much of the eastern seaboard of the United States. The Company intends to expand its market share through internal sales growth and acquisition of related companies in the foodservice distribution business.
In 1990 the Company began a program of expansion as a foodservice distributor that now includes three centers in Florida covering Orlando and Central Florida, the West Coast of Florida and Southeast Florida from Key West to West Palm Beach. In addition, the Company has operations covering Atlanta, Ga., Baltimore, Md., Philadelphia, Pa. and metropolitan New York City.
The Company's customers include national and regional supermarkets, U.S. military installations, hotels, restaurants, airline caterers and cruise ship lines.
Sun City's goal is to build a network of foodservice companies throughout the heavily populated eastern seaboard of the United States.
Years Ended January 29, 1994 and January 31, 1993 and 1992
SALES:
Sales for the fiscal years 1992 through 1994 were as follows: % Increase Year Sales (Decrease)
1994 $66,098,210 7.9% 1993 61,255,226 (10.5%) 1992 68,428,646 ( 3.0%)
For the fiscal year ended January 29, 1994, consolidated sales amounted to $66.1 million, or 7.9% above the prior fiscal year. Increases of $2.8 million in the egg division and $2.0 in the foodservice division aided by stronger egg markets during the year were the key factors for the improved sales.
For the fiscal year ended January 31, 1993, consolidated sales declined $7.2 million, or 10.5%, from the prior fiscal year. Of this amount, $5.2 million resulted from a 12.2% decrease in egg market prices which in turn resulted in lower egg selling prices. The remaining $2.0 million resulted from a decrease in unit sales which were impacted by negative economic conditions that existed during the second half of the fiscal year (see "NET EARNINGS").
COST OF SALES:
Cost of sales continue to mirror the increase and decrease in sales revenues. During fiscal 1994 cost of sales rose 8.5% and for fiscal 1993, cost of sales dropped 10.4%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses as a percentage of sales for fiscal 1994, 1993 and 1992, were 5.9%, 7.2% and 6.2%. The decrease in S, G & A for fiscal 1994 amounted to $542,447 or 12.2%. This reduction results from the Company's efforts initiated in fiscal 1993 to reduce administrative overhead which included executive salaries and the number of administrative personnel. The increase for fiscal 1993 was for the most part a direct result of the increase costs associated with the additional businesses acquired during fiscal 1992 while the Company's consolidated sales were decreasing.
INTEREST EXPENSE:
Interest expense for fiscal 1994 rose $32,092 to $422,087 reflecting a slightly higher level of borrowing during most of the year. The increase was brought about with the Company's increased participation in its Joint Venture program and two months of debt service associated with the new Gulf Coast Foodservice acquisition made in December 1993.
During fiscal 1993 interest expense was $389,995, a decrease of $87,937 or 18.4% below fiscal 1992. This was the result of a reduction in the amount of debt as well as lower interest rates throughout most of the year.
NON-RECURRING LOSSES:
During fiscal 1994 the Company had no non-recurring losses. However, the Company incurred a net non-recurring loss of $28,239 for the fiscal year ended January 31, 1993. During fiscal 1993, the Company completed the sale of three properties for a gain of $724,000. This non-recurring gain was offset by certain non- recurring losses. The Company bought out two long-term employment contracts for a total cost of $501,000. Additionally, the Company closed some of its Hawthorne, Florida operations resulting in a loss of $169,000. Losses of $82,000 were also incurred as a result of consolidating two foodservice operations into one South Florida location.
NET EARNINGS:
As a result of the benefits derived from the new egg production joint venture programs implemented during late fiscal 1993, the positive results as a consequence of the acquisition of Gulf Coast Foodservice in December 1993 and the reduced S, G & A expense, the Company's net earnings improved $554,951 from a net loss of $333,001 in fiscal 1993 to a net profit of $221,950 in fiscal 1994.
When the Company began fiscal 1993, Management expected to repeat fiscal 1992's positive performance. Management was optimistic since it had just turned the Company around after three consecutive years of losses. However, during fiscal 1993 operating profits in the egg division declined 31%, directly related to poor egg supply (quantity, quality and price) and taken together with an 18% reduction in profits from the foodservice division (the result of difficulties experienced in the Company's South Florida operations; namely Hurricane Andrew, generally poor economic conditions in the South Florida foodservice industry as well as that of the customers served), the net loss amounted to $333,001 as compared to net earnings of $354,337 for the prior fiscal year.
EARNINGS (LOSS) PER COMMON SHARE:
Fiscal Year 1994 1993 1993
Earnings (Loss) per common and common equivalent share $.15 $(.23) $.24
Earnings (Loss) per common share assuming full dilution $.15 $(.23) $.22
Average shares used in the computation - primary 1,477,260 1,435,633 1,467,493
Average shares used in the computation - fully diluted 1,505,000 1,435,633 1,580,420
LIQUIDITY AND CAPITAL RESOURCES:
The Company intends to expand its market share through internal sales growth, acquisition of related companies and modernization of its egg processing operations.
During fiscal 1994 the Company:
Expanded its credit facility with its major lender from $5 million to $6.5 million and extended the term of the loan until March 30, 1998.
Completed the acquisition of Gulf Coast Foodservice, Inc. for an initial cash payment of $796,895.
Increased its cash investment in egg production joint ventures by $498,000.
Formed a real estate joint venture to construct a 26,000 square foot egg processing plant in Spring Grove, Pa., where the Company will be the sole tenant under a 15 year lease. The Company has a 14.3% equity in the joint venture for which it has invested $50,000.
Subsequent to year end, on March 18, 1994 the Company completed its first private placement offering by raising $700,000 in five year Senior Subordinated Convertible Debentures carrying a fixed 8% rate. The debentures are convertible at $3.25 per share, representing an 18.2% premium above the market price of $2.75 at the date the transaction was agreed upon.
In fiscal 1993, the Company commenced a program of upgrading the quality, quantity and consistency of its egg supply by investing in egg producing joint ventures. The size of each investment varies from a low of 15% to a maximum of 25%. At the same time the Company will be receiving 100% of the eggs produced. Through the end of fiscal 1994 and 1993, the Company had invested $670,000 and $172,000 respectively.
During fiscal 1993 the Company:
Completed and closed the sale of three properties for a net gain of $724,000.
Purchased two long-term employment contracts for a total cost of $501,000.
Reduced long-term debt by $1.5 million.
In addition, the Company has listed its Hawthorne, Florida property for sale or lease.
As part of the Company's business plan, the Company is actively engaged in the selling of its properties which no longer fulfill its primary business objectives.
During fiscal 1993, the Company sold its Carlisle, Pennsylvania property for $650,000 (all cash) and recognized a gain of $534,000, sold its Owlkill, New York property in two separate sales. The first sale in the amount of $110,000 was completed January 30, 1992 and a gain of $92,000 was recognized. The second sale in the amount of $100,000 (all cash) was completed in fiscal 1993 and a gain of $67,000 was recognized. Additionally, during fiscal 1993, the Company sold its Clermont, Florida property in the amount of $200,000 ($35,000 in cash and a $165,000 note), and recognized a gain of $123,000.
COMMITMENTS:
As of January 29, 1994, the Company had the following commitments for capital expenditures:
As a direct result of the newly formed real estate joint venture to construct an egg processing plant whereby the Company will be the sole tenant, the Company has entered into a contract with Diamond Systems to acquire a new, state of the art, high speed (300 cases an hour) 8300 ES egg processing system. The Company will put up 25% or $185,000 and finance the balance of $560,000 with a seven year lease.
ITEM 8
ITEM 8 - Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report 19
Consolidated Balance Sheets 20
Consolidated Statements of Operations 21
Consolidated Statements of Stockholders' Equity 22
Consolidated Statements of Cash Flows 23 - 25
Notes to Consolidated Financial Statements 26 - 35
All financial statements 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.
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 January 29, 1994 and January 31, 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended January 29, 1994. 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 January 29, 1994 and January 31, 1993, and the results of their operations and their cash flows for each of the three years in the period ended January 29, 1994, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE Certified Public Accountants Fort Lauderdale, Florida April 15, 1994
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During fiscal 1994, the Company purchased a business for cash and assumption of liabilities as follows:
Fair value of assets acquired $1,620,523 Cash paid (796,895) ___________ Assumption of liabilities 823,628 =========
In addition, the Company agreed to pay the former Gulf Coast shareholders a minimum of $200,000 based on the results of first year operations of the acquired company. The amount will be determined during fiscal 1995 and paid over a five-year period.
During fiscal 1993, the Company sold property for $200,000 as follows:
Sales price $ 200,000 Cash received ( 35,000) _________ Mortgage receivable $ 165,000 =========
During fiscal 1992, the Company purchased three businesses for cash and assumption of liabilities as follows:
Fair value of assets acquired $1,270,560 Cash paid (606,559) _________ $ 664,001 Assumption of liabilities =========
A capital lease obligation of $166,742 was incurred during fiscal 1992 when the Company was assigned the lease for a building in connection with the O'Brien/Diversified acquisition.
During fiscal 1992, the Company sold property for $110,000 as follows:
Sales price $110,000 Cash received (20,000) ________ Mortgage receivable $ 90,000 ======== See notes to consolidated financial statements.
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 29, 1994, JANUARY 31, 1993 AND JANUARY 31, 1992
A. Significant Accounting Policies:
1) Principles of Consolidation - The financial statements include the accounts of Sun City Industries, Inc. and its subsidiaries (the "Company"). All material intercompany profits, transactions and balances have been eliminated.
2) Cash and Equivalents - Cash and equivalents include cash on hand and short-term investments purchased with a maturity of three months or less.
3) Inventories - All inventories are stated at the lower of cost (first-in, first-out method) or market.
4) 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 are reasonably estimatible. These joint ventures generally have lives of approximately one year.
5) Property, Plant and Equipment - Property, plant and equipment are stated at cost. Depreciation is computed principally on 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
6) Excess of Purchase Price over Fair Value of Net Assets Acquired - The excess of the purchase price over the fair value of the tangible and identifiable intangible net assets acquired is being amortized over a period of twenty years using the straight-line method.
7) Income Taxes - The Company recognizes certain income and expenses in different periods for financial reporting and income tax purposes.
During fiscal 1994, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes, effective February 1, 1993. Previously, the Company had accounted for income taxes based on Statement of Financial Standards No. 96. Adoption of SFAS 109 had no effect on the Company's fiscal 1994 operations or financial position.
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 29, 1994, JANUARY 31, 1993 AND JANUARY 31, 1992
A. Significant Accounting Policies (Continued):
8) Change in Accounting Period - During fiscal 1994 the Company changed its accounting period from a year ending January 31 to 13 four week accounting periods ending on the Saturday nearest to January 31.
9) Reclassification in Prior Period Statements - Certain reclassifications of prior period amounts have been made to conform with the current reporting presentation.
B. Inventories:
The major components of inventory are as follows:
1994 1993 Butter, dairy, and related products $1,923,792 $1,147,272 Eggs and packaging materials 96,290 427,329 Layer flocks, feed and miscellaneous 25,677 51,837 ----------- ---------- Total $2,345,759 $1,626,438 =========== ==========
C. Other Assets:
Other assets consist of the following:
1994 1993
Officers' Life Insurance $ 475,940 $ 643,330 Organizational Costs 147,477 52,625 Non- compete Costs 40,088 50,089 Recoverable Deposits 30,604 61,224 Prepaid Lease Costs 35,183 72,898 Other 130,245 114,748 ----------- ----------- Total $ 859,537 $ 994,914 =========== ===========
The Company pays the premiums on certain life insurance policies that insure the lives of key executives and are payable to the officers' designated beneficiaries in the event of their deaths. The policies, with total face amount of $1,660,000 have been assigned to the Company to the extent necessary to repay all premiums. The above officers' life insurance is net of a $300,000 loan against the policies.
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 29, 1994, JANUARY 31, 1993 AND JANUARY 31, 1992
D. Debt:
Long-term debt consists of the following: 1994 1993 Mortgage note payable, interest at 9.5%. Due in varying amounts through 1999, collateralized by property with a carrying value of approximately $429,000 at January 29, 1994. $ 337,500 $ 412,500
$6,500,000 line of credit; expires March 1998; collateralized by the Company's accounts receivable, inventory and machinery and equipment, interest at 2.25% over prime (8.25% at January 29, 1994). 4,966,666 3,091,666
Notes payable, interest at 7.5%. Due in equal installments through 1995. Collateralized by machinery and leasehold improvements with a carrying value of approximately $240,000 at January 29, 1994. 195,969 239,595
Notes payable, interest at 7.2%. Due in installments through October 1996. Collateralized by truck with a carrying value of approximately $22,000 at January 29, 1994. 20,625 28,125
Notes payable to former Gulf Coast shareholders. Due in equal installments over the next five years. 200,000 -
Notes payable, interest at the lender's commercial base plus 1.5% (8% at January 29, 1994). Due in installments through March 1997. Collateralized by machinery and equipment with a carrying value of approximately $36,000 at January 29, 1994. 28,952 -
Notes payable, interest at 8%. Due in installments through December 1995. Collateralized by trucks with a carrying value of approximately $35,000 at January 29, 1994. 35,432 -
Notes payable, interest at 7.2%. Due in installments through July 1997. Collateralized by trucks with a carrying value of approximately $54,000 at January 29, 1994. 51,523 -
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 29, 1994, JANUARY 31, 1993 AND JANUARY 31, 1992
D. Debt (Continued) : 1994 1993 Notes payable, interest at prime lending rate plus 1.5% (7.5% at January 29,1994). Due in installments through December 1998. Collateralized by machinery and equipment with a carrying value of $55,000 at January 29, 1994. 30,573 -
Notes payable, interest at 7%. Due in installments through October 1994. Col- lateralized by layer flocks with a carry- ing value of $184,000. 84,662 -
Notes payable, interest at the lender's commercial base plus 1.5%. - 28,800
Notes payable, interest rates ranging from 12% to 14.5%. - 5,722
Revolving note payable, interest at bank's prime rate. - 12,000 ------------ ----------- Total debt 5,951,902 3,818,408 Less current portion 551,667 938,117 ------------ ----------- Total long-term debt $5,400,235 $2,880,291 =========== ===========
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, net worth and net tangible assets. During fiscal 1994, the line of credit facility was expanded from $5 million to $6.5 million and the term was extended to March 30, 1998.
The aggregate maturities of long-term debt are as follows:
Fiscal Year ending 1995 551,667 1996 587,522 1997 395,368 1998 373,176 1999 4,044,166 ----------- Total $5,951,902 ===========
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 29, 1994, JANUARY 31, 1993 AND JANUARY 31,1992
E. Income Taxes:
During fiscal 1994, the Company adopted SFAS 109, Accounting for Income Taxes, effective February 1, 1993. Under SFAS 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 deferred tax balance at January 29, 1994 consists of:
Assets Liabilities Total Excess tax amortization for $124,700 - $124,700 non-compete agreement
Tax loss carryforwards 626,100 - 626,100
Accelerated depreciation for tax purposes - $(166,400) (166,400)
Allowance for bad debts 60,800 - 60,800
Capitalization for tax purposes of inventory related costs 28,700 - 28,700
Deferred compensation 112,100 _ 112,100
Less: Valuation allowance (786,00) - (786,000) -------- ------------ --------- Total $166,400 $(166,400) $0 ======== ============ =========
The valuation allowance as of January 29, 1994 and January 31, 1993 was $786,000 and $869,000, respectively.
The provision for income taxes is comprised of the following:
1994 1993 1992
State: Current $16,000 $62,700 $17,000 -------- ------- ------- Total $16,000 $62,700 $17,000 ======== ======= =======
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 29, 1994, JANUARY 31, 1993 AND JANUARY 31, 1992
Reconciliations of the effective income tax rates to the U.S. statutory rates are summarized as follows: 1994 1993 1992 Statutory rate 34.0% (34.0)% 34.0%
Reduction in valuation allowance (34.8)
Net operating loss carryovers 39.7 (33.7)
Amortization of excess of purchase price over fair value of net assets acquired (2.8) 1.9 1.2
State income taxes 4.4 15.3 3.0
Other 0.3 0.3 0.1 ------ ------ ------ Total 6.7% 23.2% 4.6% ====== ======= ======
The Company estimates that, after filing its 1993 tax return, it will have tax loss carryforwards of approximately $1,841,000 expiring in the years 2005 through 2008.
F. Commitments
Lease Commitments - Aggregate minimum rental commitments at January 29, 1994 are $2,536,211. Minimum annual rentals are payable as follows: Delivery Buildings and other Fiscal Years ending and land equipment Total
1995 $ 291,605 $ 451,317 $ 742,922 1996 260,884 382,397 643,281 1997 242,400 283,876 526,276 1998 145,914 215,143 361,057 1999 145,914 116,761 262,675 Total $1,086,717 $1,449,494 $2,536,211 ========== ========== ==========
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 January 29, 1994, January 31, 1993 and January 31, 1992 was $912,773, $1,050,650 and 1,090,634, respectively, excluding mileage charges and other executory costs. These expenses are included in selling, administrative, and general expenses in the accompanying consolidated statements of operations.
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 29, 1994, JANUARY 31, 1993 AND JANUARY 31, 1992
G. Stockholders' Equity:
1) 1982 Stock Option Plan -
In June 1982, the stockholders approved an incentive stock option plan for officers and key employees. Under the plan, options for 295,313 common shares could have been granted to purchase common shares at no less than 100% of the fair market value at date of grant. The options terminated except to a limited extent, in the event of retirement, disability, death of the optionee or termination of employment.
During fiscal 1993, options for 15,150 were exercised at $1.074 per share. No options were exercised during fiscal 1992.
Options granted under the plan were exercisable at $1.074 per share and became exercisable at the rate of 20% each year beginning one year after date of grant and expired June 1992.
2) 1990 Stock Option Plan -
In June 1990, the stockholders approved another 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. Options terminate, except to a limited extent, in the event of retirement, disability, death of the optionee or termination of employment.
Options granted under the plan 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.
As of January 29, 1994, January 31, 1993 and January 31, 1992, 262,500 shares of common stock were reserved under the plan; 30,000 options were granted at $2.875 per common share with a grant date of December 6, 1993, 22,500 options were granted at $3.50 per common share with a grant date of August 28, 1991; 234,000 options were granted at $1.833 per common share with a grant date of November 7, 1990. During fiscal 1994, no options were exercised and 41,250 were canceled. During fiscal 1993, 900 options were exercised and 3,600 options were canceled. No options were exercised or canceled during fiscal 1992. At January 29, 1994, options for 240,750 shares were outstanding and 121,950 shares were exercisable.
SUN CITY INDUSTRIES, INC. SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 29, 1994, JANUARY 31, 1993 AND JANUARY 31, 1992
H. Non-Recurring Losses:
During fiscal 1993, the Company completed the sale of three properties for a gain of $724,000. This non-recurring gain was offset by the following non-recurring losses:
The Company bought out two long-term employment contracts for a total of $501,000. Additionally, the Company closed its Hawthorne, Florida operations resulting in a loss of $169,000. Losses of $82,000 were also incurred as a result of streamlining two foodservice operations into one South Florida location.
During fiscal 1992, the Company closed one of its foodservice locations due to low profitability levels. As a result, a loss of $138,000 was incurred. This loss was partially offset by a $91,000 gain on the sale of a parcel of land and improvements in New York.
I. Acquisitions:
Effective December 6, 1993 the Company acquired substantially all the assets and liabilities of Gulf Coast Food Distributors, Inc. ("Gulf Coast") which was accounted for by the purchase method of accounting. Gulf Coast is a foodservice company serving a broad range of customers. Product lines include produce, meats, seafood, dairy, groceries, and paper products. The initial purchase price consisted of the acquisition of 1,620,523 in assets payable $796,895 in cash and the assumption of $823,628 in liabilities. The results of operations of Gulf Coast are included in the consolidated statements of operations from the date of acquisition.
The following unaudited pro forma consolidated results of operations give effect to the acquisition of Gulf Coast as though it had occurred on February 1, 1992:
Fiscal Years Ended 1994 1993 Sales and operating revenues $77,206,693 $74,549,849
Net earnings (loss) $ 282,737 $ (314,055)
Earnings (loss) per share: Primary $.19 $(.22)
Fully Diluted $.19 $(.22)
The unaudited pro forma information is not necessarily indicative of results of operations that would have occurred had the purchase been made at February 1, 1992, or of future results of operations of the Company.
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 29, 1994, JANUARY 31, 1993 AND JANUARY 31, 1992
I. Acquisitions (Continued):
The initial purchase price was funded through borrowings under the Company's revolving credit and term loan agreement. The Company is also obligated to pay an additional amount to the sellers to be determined as $2 for every $1 of the first year's pre-tax profits of Gulf Coast, such additional consideration being subject to a minimum of $200,000 and a maximum of $700,000. Further additional consideration above the amount of $700,000 is provided for, at an amount of $.50 for every $1 of the first year's pre-tax profits of Gulf Coast in excess of $350,000. The excess of the purchase price over the fair value of the tangible and identifiable intangible net assets acquired is being amortized over a period of twenty years using the straight-line method.
J. Net Earnings (Loss) Per Share:
Net earnings (loss) per common share and common equivalent share is based on the treasury stock method computed by dividing net earnings (loss) by the weighted average number of common shares outstanding including common stock equivalents for dilutive stock options and average market prices.
The average shares used in calculating net income per common share were 1,477,260 for the year ending January 29, 1994. In June 1991, the Board of Directors approved a 3 for 2 stock split, effected in the form of a stock dividend payable July 26, 1991 to shareholders of record July 19, 1991. Accordingly, all amounts per share for the year ending January 31, 1992 included in the consolidated financial statements have been retroactively adjusted to reflect the split. The average shares used in calculating net earnings per common and common equivalent share restated to reflect the stock split were 1,467,493 for the year ending January 31, 1992. The average shares used in calculating fully diluted earnings per share were 1,580,420 for the year ending January 31, 1992.
Common stock equivalents were excluded from the calculation of net loss per share for the year ending January 31, 1993 because the effect would have been antidilutive.
K. 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. The Company contributes, at the discretion of the Board of Directors, a portion of its net earnings annually. During fiscal 1994, 1993 and 1992, the Company contributed $120,000, $82,000, and $120,000 to the plan, respectively. 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 2.75% over prime and contributed $120,000 to the plan.
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 29, 1994, JANUARY 31, 1993 AND JANUARY 31, 1992
L. Segment Reporting and Significant Customers:
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 and various United States military installations, were as follows for the three fiscal years:
Sales 1994 1993 1992
Egg division 47.9% 48.3% 52.8%
Foodservice 51.7 51.0 46.7
Other marketing 1.4 .7 .5
During fiscal years ended January 29, 1994 and January 31, 1993 and January 31, 1992, sales to the Company's major customer were 10.4%, 11.2% and 13.6% respectively of consolidated sales.
M. Subsequent Event:
On March 18, 1994 the Company completed a private placement offering by raising $700,000 in five year Senior Subordinated Convertible Debentures carrying a fixed rate of 8%. The debentures are convertible into common stock at $3.25 per share.
ITEM 9
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 24, 1993 (hereinafter referred to as the "Proxy Statement"). The aforementioned information shall be set forth under the following captions in the Proxy Statement:
ITEM 10
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
ITEM 11 - Executive Compensation
See "Executive Compensation and Other Information" and "Information Concerning the Board of Directors and Its Committees - Directors' Compensation".
ITEM 12
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
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) Exhibits
(a) See Exhibits Index on the next page.
EXHIBITS INDEX
Exhibits
No. (3) Articles of Incorporation and By-laws.
There have been no changes in the articles of incorporation or by- law 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.
Included in our 1994 Annual Report on Form 10-K, pages 15 and 21, and page 34 (note J) as filed with the Securities and Exchange Commission.
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 January 29, 1994.
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 December 6, 1993 the registrant filed Form 8-K for the acquisition of the business assets of Gulf Coast, Inc.
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.
April 27, 1994 __________________________ 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 April 27, 1994 and Director
____________________ Gustave Minkin President and Director April 27, 1994
____________________ Syed Jafri Treasurer and Controller April 27, 1994
____________________ Saul Zalka Chief Operating Officer April 27, 1994 and Director