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, 1996 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 (954) 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 06/30/96 - 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, 1996 AND SEPTEMBER 30, 1995 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - - 4
NINE MONTHS ENDED JUNE 30, 1996 AND 1995.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED JUNE 30, 1996 AND 1995 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED JUNE 30, 1996 AND 1995 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
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
06/30/96 9/30/95
----------- -----------
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 1,721,286 $ 4,408,135
ACCOUNTS AND NOTES RECEIVABLE 405,552 729,778
INVENTORIES 7,368,179 7,676,352
OTHER PREPAID EXPENSES 69,620 155,864
----------- -----------
TOTAL CURRENT ASSETS 9,564,637 12,970,129
----------- -----------
INVESTMENTS 3,196,261 0
-----------------------------------
PROPERTY, PLANT AND EQUIPMENT-NET 980,657 1,011,209
---------------------------------
OTHER ASSETS 11,722 0
------------ ----------- -----------
TOTAL ASSETS $13,753,277 $13,981,338
============ =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
--------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 259,428 $ 389,841
CURRENT PORTION OF CAPITAL LEASE 23,529 20,996
----------- -----------
TOTAL CURRENT LIABILITIES 282,957 410,837
----------- -----------
LONG-TERM LIABILITIES:
----------------------
LONG-TERM PORTION OF CAPITAL LEASE 38,315 57,012
DEFERRED INCOME TAXES -0- 108,800
----------- -----------
TOTAL LONG-TERM LIABILITIES 38,315 165,812
----------- -----------
SHAREHOLDERS' EQUITY 13,432,005 13,404,689
-------------------- ----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $13,753,277 $13,981,338
======================================== =========== ===========
- 3 -
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED
-----------------
6/30/96 6/30/95
---------- ----------
SALES $2,463,367 $1,901,127
COST OF SALES 1,616,292 1,135,911
---------- ----------
GROSS PROFIT 847,075 765,216
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 908,621 895,200
---------- ----------
OPERATING INCOME (LOSS) ( 61,546) ( 129,984)
OTHER INCOME:
INTEREST INCOME 178,355 198,079
INTEREST EXPENSE ( 4,075) ( 60,964)
OTHER, NET 2,386 9,756
---------- ----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 115,120 16,887
PROVISION FOR
INCOME TAXES 87,800 ( 9,300)
---------- ----------
NET INCOME $ 27,320 $ 26,187
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ 0.01 $ 0.01
========== ===========
-4-
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
------------------
6/30/96 6/30/95
---------- ----------
SALES $ 462,995 $ 705,074
COST OF SALES 345,545 436,322
---------- ----------
GROSS PROFIT 117,450 268,752
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 328,192 283,348
---------- ----------
OPERATING INCOME (LOSS) ( 210,742) ( 14,596)
OTHER INCOME:
INTEREST INCOME 62,282 43,637
INTEREST EXPENSE 35,423 ( 20,914)
OTHER, NET 1,006 8,522
---------- ----------
INCOME BEFORE PROVISION
FOR INCOME TAXES ( 112,031) 16,649
PROVISION FOR
INCOME TAXES 12,300 ( 9,300)
---------- ----------
NET INCOME $( 124,331) $ 25,949
========== =========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ (0.03) $ 0.01
========== ==========
- 5 -
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
-----------------
6/30/96 6/30/95
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 27,320 $ 26,187
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 78,311 78,706
CHANGES IN OPERATING ACTIVITIES:
(INCR) DECR IN ACCOUNTS RECEIVABLE 324,226 ( 181,604)
(INCR) DECR IN INVENTORY 308,173 ( 669,332)
(INCR) DECR IN OTHER ASSETS 74,522 71,419
(DECR) INCR IN ACCOUNTS PAYABLE AND
ACCRUED EXPENSES ( 173,798) 2,564
(DECR) INCR IN ACCRUED INCOME TAX 43,381 0
(DECR) INCR IN DEFERRED INCOME TAX ( 108,800) 34,800
------------ ------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 573,335 ( 637,260)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT ( 47,759) ( 46,568)
SALES (PURCHASES) OF INVESTMENTS - NET ( 3,196,261) ( 13,158)
------------ ------------
NET CASH FROM (USED BY)
INVESTING ACTIVITIES ( 3,244,020) ( 59,726)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENT OF CAPITAL LEASE ( 16,164) ( 14,983)
------------ ------------
NET (DECREASE) IN CASH AND CASH
EQUIVALENTS ( 2,686,849) ( 711,969)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 4,408,135 961,403
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,721,286 $ 249,434
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD $ 0 $ 38,068
FOR INTEREST ============ ============
CASH PAID DURING THE PERIOD FOR INCOME
TAXES $ 160,119 $ 0
============ ============
- 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, 1996, ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR THE
FISCAL YEAR ENDING SEPTEMBER 30, 1996. FOR FURTHER INFORMATION REFER TO
THE CONSOLIDATED FINANCIAL STATEMENTS AND FOOTNOTES THERETO INCLUDED IN
THE COMPANY'S ANNUAL REPORT IN FORM 10-K FOR THE FISCAL YEAR ENDED
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:
6/30/96 9/30/95
---------- ----------
RAW MATERIALS $1,486,854 $1,609,299
WORK IN PROCESS 3,419,275 3,047,844
FINISHED GOODS 2,462,050 3,019,209
---------- ----------
$7,368,179 $7,676,352
========== ==========
(F) INVESTMENTS -
INVESTMENTS ARE CARRIED AT COST LESS AMORTIZATION OF PREMIUM (DISCOUNT),
IF ANY, AND INCLUDE PRIVATE EXPORT FUNDING CORPORATION (PEFCO) NOTES.
THESE NOTES ARE GUARANTEED BY THE EXPORT-IMPORT BANK OF THE UNITED
STATES, AN AGENCY OF THE UNITED STATES.
- 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. DEFERRED INCOME TAXES WERE NOT PROVIDED ON
SISC'S PRIOR YEARS' UNDISTRIBUTED RETAINED EARNINGS. SISC'S 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, 1996, THE COMPANY HAD GRANTED STOCK OPTIONS ON 100,000
SHARES OF COMMON STOCK.
- 8 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY:
- ----------
DURING THE FIRST THREE QUARTERS OF THE CURRENT FISCAL YEAR ENDING JUNE 30, 1996,
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 $1,587,000, COMPARED TO AN AVERAGE BALANCE OF $2,968,000 FOR
THE TWELVE MONTHS ENDED SEPTEMBER 30,1995, OR AN AVERAGE BALANCE OF $2,850,000
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1994. 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 1996. 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
$47,759 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, 1996,
SHIPMENTS WERE $462,995 DOWN FROM $1,109,661 FOR THE QUARTER ENDED MARCH 31,
1996. SHIPMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1996 WERE $2,463,367, UP FROM
$1,901,127, OR 29.6% FOR THE SAME PERIOD ONE YEAR AGO AND UP $233,262 OR 10.5%
FROM THE NINE MONTHS ENDED JUNE 30, 1994. EXPORT SHIPMENTS FOR THE NINE MONTHS
ENDED JUNE 30, 1996 WERE $1,613,784 OR 65.5% OF TOTAL SALES, UP $681,255 OR
73.1% FROM THE SAME PERIOD ONE YEAR AGO. DOMESTIC SHIPMENTS FOR THE FIRST NINE
MONTHS OF THE CURRENT FISCAL YEAR WERE $849,583 SLIGHTLY BEHIND SHIPMENTS FOR
THE SAME PERIOD ONE YEAR AGO OF $968,598. SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES DECREASED $13,421 FROM THE SAME PERIOD ONE YEAR AGO. THE DIRECT LABOR
FORCE CONTINUES AT A REDUCED LEVEL DUE TO SUFFICIENT INVENTORY LEVELS IN
FINISHED GOODS.
- 9 -
<PAGE>
RESULTS OF OPERATIONS: (CONTINUED)
- ----------------------
INTEREST IN SUNAIR PRODUCTS CONTINUES HIGH IN THE FOREIGN MARKETS, SPECIFICALLY
IN THE MIDDLE EAST AND FAR EAST. THE NEW PATHFINDER SYSTEM WAS DEMONSTRATED FOR
THE FIRST TIME IN THE MIDDLE EAST IN APRIL. THE PROCUREMENT CYCLE CONTINUES,
HOWEVER, TO BE EXTREMELY LONG. THE DOMESTIC MARKET REMAINS SLUGGISH AT PRESENT,
HOWEVER, THE LONG RANGE PROJECTS CONTINUE TO SHOW IMPROVEMENT. THE COMPANY
REMAINS OPTIMISTIC FOR BOTH DOMESTIC AND OVERSEAS LONG-RANGE PROJECTS.
- 10 -
<PAGE>
PART II OTHER INFORMATION
5. OTHER INFORMATION
NONE
6. EXHIBITS AND REPORTS ON FORM 8-K
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 13, 1996 /S/ ROBERT URICHO, JR.
DATE _________________
-----------------------------
ROBERT URICHO, JR.,PRINCIPAL
EXECUTIVE OFFICER
AUGUST 13, 1996 /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-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,721,286
<SECURITIES> 3,196,261
<RECEIVABLES> 405,552
<ALLOWANCES> 800
<INVENTORY> 7,368,179
<CURRENT-ASSETS> 9,564,637
<PP&E> 4,072,021
<DEPRECIATION> 3,091,364
<TOTAL-ASSETS> 13,753,277
<CURRENT-LIABILITIES> 282,957
<BONDS> 0
0
0
<COMMON> 480,074
<OTHER-SE> 12,951,931
<TOTAL-LIABILITY-AND-EQUITY> 13,753,277
<SALES> 2,463,367
<TOTAL-REVENUES> 2,641,722
<CGS> 1,616,292
<TOTAL-COSTS> 1,616,292
<OTHER-EXPENSES> 908,621
<LOSS-PROVISION> 800
<INTEREST-EXPENSE> (4,075)
<INCOME-PRETAX> 115,120
<INCOME-TAX> 87,800
<INCOME-CONTINUING> 27,320
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,320
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
