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 JUNE 30, 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 06/30/95 - 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 - -
JUNE 30, 1995 AND SEPTEMBER 30, 1994 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
NINE MONTHS ENDED JUNE 30, 1995 AND 1994 4
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED JUNE 30, 1995 AND 1994 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED JUNE 30, 1995 AND 1994 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS 7-8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED CONDENSED STATEMENTS 9-10
PART II. OTHER INFORMATION 11
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS 6/30/95 9/30/94
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
CASH $ 249,434 $ 961,403
ACCOUNTS AND NOTES RECEIVABLE 368,338 186,734
INVENTORIES 8,161,717 7,492,385
OTHER PREPAID EXPENSES 80,873 161,073
----------- -----------
TOTAL CURRENT ASSETS 8,860,362 8,801,595
----------- -----------
INVESTMENT IN MARKETABLE SECURITIES 4,020,021 4,006,864
PROPERTY, PLANT AND EQUIPMENT-NET 942,940 975,078
OTHER ASSETS 8,781 0
----------- -----------
TOTAL ASSETS $13,832,104 $13,783,537
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 388,706 $ 386,141
CURRENT PORTION OF CAPITALIZED LEASE 20,586 19,404
----------- -----------
TOTAL CURRENT LIABILITIES 409,292 405,545
----------- -----------
LONG-TERM LIABILITIES:
LONG-TERM PORTION OF CAPITAL LEASE 62,608 78,772
DEFERRED INCOME TAXES 96,800 62,000
----------- -----------
TOTAL LONG-TERM LIABILITIES 159,408 140,772
----------- -----------
SHAREHOLDERS' EQUITY 13,263,404 13,237,220
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $13,832,104 $13,783,537
=========== ===========
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED
(UNAUDITED)
6/30/95 6/30/94
---------- ----------
<S> <C> <C>
SALES $1,901,127 $2,230,105
COST OF SALES 1,135,911 1,245,315
---------- ----------
GROSS PROFIT 765,216 984,790
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 895,200 1,040,695
---------- ----------
OPERATING INCOME (129,984) (55,905)
OTHER INCOME:
INTEREST INCOME 198,079 190,721
INTEREST EXPENSE (60,964) (32,492)
OTHER, NET 9,756 13,291
---------- ----------
INCOME BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 16,887 115,615
PROVISION (BENEFIT) FOR
INCOME TAXES (9,300) 0
---------- ----------
NET INCOME $ 26,187 $ 115,615
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ 0.01 $ 0.03
========== ==========
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
(UNAUDITED)
6/30/95 6/30/94
---------- ----------
<S> <C> <C>
SALES $ 705,074 $ 532,928
COST OF SALES 436,322 287,819
---------- ----------
GROSS PROFIT 268,752 245,109
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 283,348 338,932
---------- ----------
OPERATING INCOME (14,596) (93,823)
OTHER INCOME:
INTEREST INCOME 43,637 65,737
INTEREST EXPENSE (20,914) (11,591)
OTHER, NET 8,522 1,640
---------- ----------
INCOME BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 16,649 (38,037)
PROVISION (BENEFIT) FOR
INCOME TAXES (9,300) (9,796)
---------- ----------
NET INCOME $ 25,949 $ (28,241)
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ 0.01 $ (0.01)
========== ==========
</TABLE>
- 5 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
(UNAUDITED)
6/30/95 6/30/94
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 26,187 $ 115,615
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 78,706 68,843
CHANGES IN OPERATING ACTIVITIES:
(INCR) DECR IN SHORT TERM INVESTMENT 0 (872,097)
(INCR) DECR IN ACCOUNTS RECEIVABLE (181,604) (32,813)
(INCR) DECR IN INVENTORY (669,332) (300,834)
(INCR) DECR IN OTHER ASSETS 71,419 (12,074)
(DECR) INCR IN ACCOUNTS PAYABLE AND
ACCRUED EXPENSES 2,564 (133,964)
(DECR) INCR IN ACCRUED INCOME TAX 0 (57,258)
INCR IN DEFERRED INCOME TAX 34,800 0
--------- -----------
NET CASH USED BY OPERATING ACTIVITIES (637,260) (1,224,582)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT (46,568) (56,767)
SALES (PURCHASES) OF INVESTMENTS - NET (13,158) (1,022)
--------- -----------
NET CASH FROM INVESTING ACTIVITIES (59,726) (57,789)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENT OF CAPITAL LEASE (14,983) (26,528)
--------- -----------
NET INCREASE (DECREASE) IN CASH (711,969) (1,308,899)
CASH AT BEGINNING OF PERIOD 961,403 1,520,763
--------- -----------
CASH AT END OF PERIOD $ 249,434 $ 211,864
========= ===========
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
========= ===========
</TABLE>
- 6 -
<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 NINE MONTHS ENDED JUNE 30, 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:
<TABLE>
<CAPTION>
6/30/95 9/30/94
---------- ----------
<S> <C> <C>
RAW MATERIALS $1,616,079 $1,506,005
WORK IN PROCESS 3,518,568 3,222,864
FINISHED GOODS 3,027,070 2,763,516
---------- ----------
$8,161,717 $7,492,385
========== ==========
</TABLE>
- 7 -
<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 CARRYOVERS 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
$96,800 AT JUNE 30, 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 DETERMINED BY THE
BOARD OF DIRECTORS.
5. STOCK OPTIONS:
AS OF JUNE 30, 1995, THE COMPANY HAD GRANTED STOCK OPTIONS ON 20,100
SHARES OF COMMON STOCK.
- 8 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT OF OPERATIONS
LIQUIDITY:
DURING THE FIRST THREE QUARTERS OF THE CURRENT FISCAL YEAR ENDING JUNE
30, 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 NINE MONTH PERIOD, CASH AND SHORT TERM
INVESTMENTS MAINTAINED AN AVERAGE BALANCE OF $572,000, 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 NINE MONTHS OF THE CURRENT FISCAL YEAR, THE COMPANY
EXPENDED $46,568 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 THIRD QUARTER OF THE CURRENT FISCAL YEAR ENDED JUNE 30, 1995,
SHIPMENTS WERE $ 705,074, UP FROM SHIPMENTS OF $622,729 FOR THE SECOND
QUARTER ENDED MARCH 31, 1995 AND UP FROM SHIPMENTS OF $ 573,324 FOR THE
FIRST QUARTER ENDED DECEMBER 31, 1994. SHIPMENTS FOR THE NINE MONTHS ENDED
JUNE 30, 1995 WERE $ 1,901,127, DOWN FROM $2,230,105 OR 14.8% FOR THE SAME
PERIOD ONE YEAR AGO AND DOWN FROM $5,271,345 OR 63.9% FROM THE NINE MONTHS
ENDED JUNE 30, 1993. EXPORT SHIPMENTS FOR THE NINE MONTHS ENDED JUNE 30,
1995 WERE $932,529 OR 49.5% OF TOTAL SALES, DOWN $ 453,246 OR 32.7% FROM THE
SAME PERIOD ONE YEAR AGO. DOMESTIC SHIPMENTS FOR THE FIRST NINE MONTHS OF
THE CURRENT FISCAL YEAR WERE $ 968,598, COMPARABLE TO SHIPMENTS FOR THE SAME
PERIOD ONE YEAR AGO OF $ 844,330. MANAGEMENT CONTINUES TO MONITOR
- 9 -
<PAGE>
RESULTS OF OPERATIONS: (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES WHICH DECREASED $ 145,495
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 LIMITED NUMBER OF PROGRAMS
AND NECESSARY FUNDING. HOWEVER, A SLIGHT INCREASE IN CERTAIN PROGRAMS HAS
BEEN SEEN BY THE COMPANY FOR THE NEAR FUTURE. IN RESPONSE TO GROWING DEMAND,
THE COMPANY RESUMED PRODUCTION OF THE AIRBORNE LINE OF HF EQUIPMENT WITH
EXCELLENT RECEPTION. DELIVERY IS SCHEDULED FOR THE FOURTH QUARTER OF FISCAL
1995. ON THE INTERNATIONAL SCENE, CONTINUED ACTIVITY FOR NEW AND DEVELOPING
PROGRAMS IS STRONG. TRAVEL TO THE PACIFIC RIM IS SCHEDULED FOR THE FOURTH
QUARTER IN RESPONSE TO REQUESTS FROM SEVERAL COUNTRIES WITH CURRENT
PROGRAMS. WHILE THE COMPANY IS OPTIMISTIC ABOUT FUTURE REQUIREMENTS FOR ITS
EQUIPMENT, THE LENGTH OF TIME FOR THE PROCUREMENT CYCLE CONTINUES TO BE
EXTREMELY LONG.
- 10 -
<PAGE>
PART II OTHER INFORMATION
NONE
- 11 -
<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.
AUGUST 3, 1995 /S/ ROBERT URICHO, JR.
DATE _______________ -----------------------------
ROBERT URICHO, JR., PRINCIPAL
EXECUTIVE OFFICER
AUGUST 3, 1995 /S/ SYNNOTT B. DURHAM
DATE _______________ ----------------------------
SYNNOTT B. DURHAM, PRINCIPAL
ACCOUNTING OFFICER
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000095366
<NAME> SUNAIR ELECTRONICS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 249,434
<SECURITIES> 4,020,021
<RECEIVABLES> 368,338
<ALLOWANCES> 900
<INVENTORY> 8,161,717
<CURRENT-ASSETS> 8,860,362
<PP&E> 3,929,540
<DEPRECIATION> 2,986,600
<TOTAL-ASSETS> 13,832,104
<CURRENT-LIABILITIES> 409,292
<BONDS> 0
<COMMON> 480,074
0
0
<OTHER-SE> 12,783,330
<TOTAL-LIABILITY-AND-EQUITY> 13,832,104
<SALES> 1,901,127
<TOTAL-REVENUES> 2,099,206
<CGS> 1,135,911
<TOTAL-COSTS> 1,135,911
<OTHER-EXPENSES> 895,200
<LOSS-PROVISION> 900
<INTEREST-EXPENSE> 60,964
<INCOME-PRETAX> 16,887
<INCOME-TAX> (9,300)
<INCOME-CONTINUING> 26,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,187
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
