UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1995 COMMISSION FILE NUMBER 1-4334
************** *************
SUNAIR ELECTRONICS, INC.
**********************************************************************
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-0780772
********************************* ****************************
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3101 SW THIRD AVE., FT. LAUDERDALE, FLA. 33315
**************************************** **************
(ADDRESS OR PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 525-1505
**************
NONE
**********************************************************************
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT)
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 THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE
REPORT.
CLASS OUTSTANDING AT
***************************** ****************************
COMMON STOCK, $0.10 PAR VALUE 03/31/95 - 3,932,370 SHARES
(NET OF TREASURY SHARES)
<PAGE>
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
INDEX
*****
PAGE NO.
********
PART I. FINANCIAL INFORMATION:
CONSOLIDATED CONDENSED BALANCE SHEETS - -
MARCH 31, 1995 AND SEPTEMBER 30, 1994 2
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
SIX MONTHS ENDED MARCH 31, 1995 AND 1994 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED MARCH 31, 1995 AND 1994 4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
SIX MONTHS ENDED MARCH 31, 1995 AND 1994 5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS 6-7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED CONDENSED STATEMENTS 8-9
PART II. OTHER INFORMATION 10
- 1 -
<PAGE>
PART I. FINANCIAL INFORMATION
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS 3/31/95 9/30/94
------ ----------- -----------
CURRENT ASSETS:
---------------
CASH $ 503,609 $ 961,403
ACCOUNTS AND NOTES RECEIVABLE 391,700 186,734
INVENTORIES 7,807,731 7,492,385
OTHER PREPAID EXPENSES 83,699 161,073
----------- -----------
TOTAL CURRENT ASSETS 8,786,739 8,801,595
----------- -----------
INVESTMENT IN MARKETABLE SECURITIES 3,956,334 4,006,864
-----------------------------------
PROPERTY, PLANT AND EQUIPMENT-NET 923,384 975,078
---------------------------------
OTHER ASSETS 21,562 0
------------ ----------- -----------
TOTAL ASSETS $13,688,019 $13,783,537
============ =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
--------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 260,283 $ 386,141
CURRENT PORTION OF CAPITALIZED LEASE 20,184 19,404
----------- -----------
TOTAL CURRENT LIABILITIES 280,467 405,545
----------- -----------
LONG-TERM LIABILITIES:
----------------------
LONG-TERM PORTION OF CAPITAL LEASE 68,099 78,772
DEFERRED INCOME TAXES 102,000 62,000
----------- -----------
TOTAL LONG-TERM LIABILITIES 170,099 140,772
----------- -----------
SHAREHOLDERS' EQUITY 13,237,453 13,237,220
-------------------- ----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $13,688,019 $13,783,537
======================================== =========== ===========
- 2 -
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED
(UNAUDITED)
3/31/95 3/31/94
---------- ----------
SALES $1,196,053 $1,697,177
COST OF SALES 699,589 957,496
---------- ----------
GROSS PROFIT 496,464 739,681
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 611,852 701,763
---------- ----------
OPERATING INCOME ( 115,388) 37,918
OTHER INCOME:
INTEREST INCOME 154,442 124,984
INTEREST EXPENSE ( 40,050) ( 20,901)
OTHER, NET 1,234 11,651
---------- ----------
INCOME BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 238 153,652
PROVISION (BENEFIT) FOR
INCOME TAXES 0 9,796
---------- ----------
NET INCOME $ 238 $ 143,856
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ 0.00 $ 0.04
========== ==========
- 3 -
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
(UNAUDITED)
3/31/95 3/31/94
---------- ----------
SALES $ 622,729 $ 612,276
COST OF SALES 337,453 325,979
---------- ----------
GROSS PROFIT 285,276 286,297
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 320,583 360,239
---------- ----------
OPERATING INCOME ( 35,307) ( 73,942)
OTHER INCOME:
INTEREST INCOME 76,201 44,880
INTEREST EXPENSE ( 19,978) ( 11,381)
OTHER, NET 682 10,572
---------- ----------
INCOME BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 21,598 ( 29,871)
PROVISION (BENEFIT) FOR
INCOME TAXES 7,100 ( 14,976)
---------- ----------
NET INCOME $ 14,498 ($ 14,895)
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ 0.00 $ 0.00
========== ==========
- 4 -
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
(UNAUDITED)
3/31/95 3/31/94
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 238 $ 143,856
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 52,907 56,285
CHANGES IN OPERATING ACTIVITIES:
(INCR) DECR IN SHORT TERM INVEST 0 (1,039,813)
(INCR) DECR IN ACCOUNTS RECEIVABLE ( 204,966) 150,536
(INCR) DECR IN INVENTORY ( 315,346) ( 166,679)
(INCR) DECR IN OTHER ASSETS 55,810 ( 17,138)
(DECR) INCR IN ACCOUNTS PAYABLE
AND ACCRUED EXPENSES ( 125,858) ( 196,183)
(DECR) INCR IN ACCRUED INCOME TAX 0 ( 47,804)
INCR IN DEFFERED INCOME TAX 40,000 0
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES ( 497,215) (1,116,940)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT ( 1,216) ( 21,510)
SALES (PURCHASES) OF INVESTMENTS - NET 50,530 ( 636)
------------ ------------
NET CASH FROM INVESTING ACTIVITIES 49,314 ( 22,146)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENT OF CAPITAL LEASE ( 9,893) ( 4,105)
----------- -----------
NET INCREASE (DECREASE) IN CASH ( 457,794) (1,143,191)
CASH AT BEGINNING OF PERIOD 961,403 1,520,763
------------ ------------
CASH AT END OF PERIOD $ 503,609 $ 377,572
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE YEAR FOR INTEREST $ 38,068 $ 32,693
============ ============
CASH PAID DURING THE YEAR FOR INCOME
TAXES $ 0 $ 55,258
============ ============
- 5 -
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
THE ACCOMPANYING UNAUDITED FINANCIAL STATEMENTS HAVE BEEN PREPARED
IN ACCORDANCE WITH THE INSTRUCTIONS TO FORM 10-Q AND DO NOT INCLUDE
ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. IN THE
OPINION OF MANAGEMENT, ALL ADJUSTMENTS (CONSISTING OF NORMAL
RECURRING ACCRUALS) CONSIDERED NECESSARY FOR A FAIR PRESENTATION
HAVE BEEN INCLUDED. OPERATING RESULTS FOR THE SIX MONTHS ENDED
MARCH 31, 1995, ARE NOT NECESSARILY INDICATIVE OF THE RESULTS THAT
MAY BE EXPECTED FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1995.
2. ACCOUNTING POLICIES -
(A) PRINCIPLES OF CONSOLIDATION-
THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE
ACCOUNTS OF THE COMPANY AND ITS SUBSIDIARY. ALL SIGNIFICANT
INTER-COMPANY ACCOUNTS AND TRANSACTIONS HAVE BEEN ELIMINATED IN
CONSOLIDATION.
(B) PROPERTY, PLANT AND EQUIPMENT-
PROPERTY, PLANT AND EQUIPMENT IS DEPRECIATED OVER THE ESTIMATED
USEFUL LIVES OF THE ASSETS USING BOTH STRAIGHT-LINE AND ACCELERATED
METHODS.
(C) RESEARCH AND DEVELOPMENT COSTS-
ALL RESEARCH AND DEVELOPMENT COSTS ARE CHARGED TO EXPENSE AS
INCURRED.
(D) EARNINGS PER COMMON SHARE-
EARNINGS PER COMMON SHARE ARE COMPUTED BASED ON WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING DURING EACH PERIOD.
(E) INVENTORIES-
INVENTORIES CONSIST OF THE FOLLOWING:
3/31/95 9/30/94
---------- -----------
RAW MATERIALS $1,746,615 $1,506,005
WORK IN PROCESS 2,756,626 3,222,864
FINISHED GOODS 3,304,490 2,763,516
----------- -----------
$7,807,731 $7,492,385
=========== ===========
- 6 -
<PAGE>
3. INCOME TAXES:
ON OCTOBER 1, 1993, THE COMPANY CHANGED ITS METHOD OF ACCOUNTING FOR
INCOME TAXES AS REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
("SFAS") NO 109, "ACCOUNTING FOR INCOME TAXES". SFAS NO 109 RETAINS THE
REQUIREMENT TO RECORD DEFERRED INCOME TAXES FOR TEMPORARY DIFFERENCES
THAT ARE REPORTED IN DIFFERENT YEARS FOR FINANCIAL REPORTING AND FOR
TAX PURPOSES; HOWEVER, THE METHODOLOGY FOR CALCULATING AND RECORDING
DEFERRED INCOME TAXES HAS CHANGED. UNDER THE LIABILITY METHOD ADOPTED
BY SFAS NO 109, DEFERRED TAX LIABILITIES OR ASSETS ARE COMPUTED USING
THE TAX RATES EXPECTED TO BE IN EFFECT WHEN THE TEMPORARY DIFFERENCES
REVERSE. ALSO, REQUIREMENTS FOR RECOGNITION OF DEFERRED TAX ASSETS AND
OPERATING LOSS AND TAX CREDIT CARRYFORWARDS WERE LIBERALIZED BY
REQUIRING THEIR RECOGNITION WHEN AND TO THE EXTENT THAT THEIR
REALIZATION IS DEEMED TO BE MORE LIKELY THAN NOT.
UNDER THE TAX REFORM ACT OF 1984, SUNAIR INTERNATIONAL SALES CORP.
(SISC) ELECTED TO BE TREATED AS AN INTEREST CHARGE DISC (ICD) AS OF
JANUARY 1, 1985. ACCORDINGLY, ONLY ONE-SEVENTEENTH (1/17) OF ITS NET
INCOME WILL BE CONSIDERED AS A DEEMED DIVIDEND TO ITS PARENT
CORPORATION, THE COMPANY. THE COMPANY INTENDS THAT THE BALANCE OF
SISC'S NET INCOME WILL BE PERMANENTLY RETAINED BY SISC AND THAT THE
COMPANY WILL ONLY BE REQUIRED TO PAY AN ANNUAL INTEREST CHARGE ON THE
AMOUNT OF TAXES IT DEFERS ON THIS RETAINED INCOME. HOWEVER, DUE TO SFAS
NO 109, BEGINNING IN FISCAL 1994 THE COMPANY HAS A DEFERRED INCOME TAX
LIABILITY OF $102,900 AT MARCH 31, 1995, AND $62,000 AT SEPTEMBER 30,
1994. DEFERRED INCOME TAXES WERE NOT PROVIDED ON SISC'S PRIOR YEARS'
UNDISTRIBUTED RETAINED EARNINGS SINCE IT IS INTENDED TO BE INDEFINITELY
INVESTED. SISC'S UNDISTRIBUTED RETAINED EARNINGS ARE APPROXIMATELY
$3,000,000.
4. PREFERRED STOCKS:
THE COMPANY HAS 500,000 AUTHORIZED SHARES OF PREFERRED STOCK, NO
PAR VALUE, THAT MAY BE ISSUED AT SUCH TERMS AND PROVISIONS AS DETER-
MINED BY THE BOARD OF DIRECTORS.
5. STOCK OPTIONS:
AS OF MARCH 31, 1995, THE COMPANY HAD GRANTED STOCK OPTIONS ON
23,100 SHARES OF COMMON STOCK.
- 7 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT OF OPERATIONS
LIQUIDITY:
----------
DURING THE FIRST AND SECOND QUARTERS OF THE CURRENT
FISCAL YEAR ENDING MARCH 31, 1995, THE COMPANY MAINTAINED CASH AND
SHORT TERM INVESTMENTS MORE THAN ADEQUATE TO COVER KNOWN REQUIREMENTS,
UNFORESEEN EVENTS OR UNCERTAINTIES THAT MIGHT OCCUR. DURING THE SIX
MONTH PERIOD, CASH AND SHORT TERM INVESTMENTS MAINTAINED AN AVERAGE
BALANCE OF $ 716,000, COMPARED TO AN AVERAGE BALANCE OF $2,850,000 FOR
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1994, OR AN AVERAGE BALANCE OF
$3,407,000 FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1993. SHORT TERM
INVESTMENTS ARE TAX EXEMPT MONEY MARKET FUNDS THAT ARE READILY
AVAILABLE FOR IMMEDIATE USE SHOULD THE OCCASION ARISE. IT IS
ANTICIPATED THAT THE COMPANY WILL REMAIN AS LIQUID DURING THE REST OF
FISCAL 1995. INVENTORIES CONTAIN NO OBSOLESCENCE AS ADJUSTMENTS ARE
MADE AS THEY OCCUR. ACCOUNTS AND NOTES RECEIVABLE CONTAIN NO BAD DEBTS.
INTERIM RESERVES ARE MAINTAINED TO COVER CANCELLATION CHARGES UNPAID
AND ANY FREIGHT CHARGE DISPUTES. ALL MONETARY TRANSACTIONS ARE IN U.S.
DOLLARS AND NO LETTERS OF CREDIT INVOLVE FOREIGN EXCHANGE.
CAPITAL RESOURCES:
------------------
DURING THE FIRST SIX MONTHS OF THE CURRENT FISCAL YEAR,
THE COMPANY EXPENDED $1,216 FOR CAPITAL ASSETS. NO EXPENDITURES ARE
CONTEMPLATED FOR PLANT EXPANSION OR EXTENSIVE MAINTENANCE. THE COMPANY
HAS NO LONG TERM DEBT AND NONE IS CONTEMPLATED OTHER THAN THE LEASE OF
THE COMPUTER. LIABILITIES CONSIST OF CURRENT ACCOUNTS PAYABLE AND
EXPENSES RELATED TO THE CURRENT ACCOUNTING PERIOD AND THE CAPITAL
LEASE.
RESULTS OF OPERATIONS:
----------------------
DURING THE SECOND QUARTER OF THE CURRENT FISCAL YEAR
ENDED MARCH 31, 1995, SHIPMENTS WERE $ 622,729, UP SLIGHTLY FROM
SHIPMENTS OF $ 573,324 FOR THE QUARTER ENDED DECEMBER 31, 1994.
SHIPMENTS FOR THE SIX MONTHS ENDED MARCH 31, 1995 WERE $ 1,196,053 DOWN
FROM $ 1,697,177 OR 29.5% FOR THE SAME PERIOD ONE YEAR AGO AND DOWN $
2,915,882 OR 70.9% FROM THE SIX MONTHS ENDED MARCH 31, 1993. EXPORT
SHIPMENTS FOR THE SIX MONTHS ENDED MARCH 31, 1995 WERE $665,033 OR
55.6% OF TOTAL SALES, DOWN $ 454,495 OR 40.6% FROM THE SAME PERIOD ONE
YEAR AGO. DOMESTIC SHIPMENTS FOR THE FIRST SIX MONTHS OF THE CURRENT
FISCAL YEAR WERE $ 531,020, COMPARABLE TO SHIPMENTS FOR THE SAME PERIOD
ONE YEAR AGO OF $ 577,649. MANAGEMENT CONTINUES TO MONITOR
- 8 -
<PAGE>
RESULTS OF OPERATIONS: (CONTINUED)
----------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES WHICH DECREASED $ 89,911
FROM THE SAME PERIOD ONE YEAR AGO. THE DIRECT LABOR FORCE CONTINUES AT
A REDUCED LEVEL DUE TO SUFFICIENT INVENTORY LEVELS IN FINISHED GOODS.
THE DOMESTIC MARKET CONTINUES TO REFLECT A SEVERE LACK OF
NEW PROGRAMS AND FUNDING. THE COMPANY IS, HOWEVER, OBTAINING A SHARE OF
THE LIMITED BUSINESS AVAILABLE. ON THE INTERNATIONAL SCENE, A NUMBER OF
POTENTIAL PROGRAMS WERE UNCOVERED DURING EXTENSIVE TRAVEL INCURRED BY
THE INTERNATIONAL MARKETING DEPARTMENT IN THE SECOND QUARTER, AS WELL
AS AN INDICATION OF THE EASING OF BUDGETARY CONSTRAINTS EXPERIENCED IN
THE RECENT PAST. WHILE THE COMPANY IS OPTIMISTIC ABOUT FUTURE
REQUIREMENTS FOR ITS EQUIPMENT THE LENGTH OF TIME FOR THE PROCUREMENT
CYCLE CONTINUES TO BE EXTREMELY LONG.
- 9 -
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
ON FEBRUARY 6, 1995, THE COMPANY ISSUED A REPORT ON FORM
8-K TO ADVISE OF THE RESIGNATION OF GEORGE V. LENNON III, VICE
PRESIDENT - GENERAL MANAGER EFFECTIVE JANUARY 15, 1995.
- 10 -
<PAGE>
SIGNATURES
----------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
SUNAIR ELECTRONICS, INC.
/S/ ROBERT URICHO, JR.
DATE MAY 2, 1995 _____________________________
----------- ROBERT URICHO, JR., PRINCIPAL
EXECUTIVE OFFICER
/S/ SYNNOTT B. DURHAM
DATE MAY 2, 1995 ____________________________
----------- SYNNOTT B. DURHAM, PRINCIPAL
ACCOUNTING OFFICER
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000095366
<NAME> SUNAIR ELECTRONICS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 503,609
<SECURITIES> 3,956,334
<RECEIVABLES> 391,700
<ALLOWANCES> 600
<INVENTORY> 7,807,731
<CURRENT-ASSETS> 8,786,739
<PP&E> 3,884,188
<DEPRECIATION> 2,960,804
<TOTAL-ASSETS> 13,688,019
<CURRENT-LIABILITIES> 280,467
<BONDS> 0
<COMMON> 480,074
0
0
<OTHER-SE> 12,757,379
<TOTAL-LIABILITY-AND-EQUITY> 13,688,019
<SALES> 1,196,053
<TOTAL-REVENUES> 1,350,495
<CGS> 699,589
<TOTAL-COSTS> 699,589
<OTHER-EXPENSES> 611,852
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 40,500
<INCOME-PRETAX> 238
<INCOME-TAX> 0
<INCOME-CONTINUING> 238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 238
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
