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 DECEMBER 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 (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 12/31/95 - 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 - -
DECEMBER 31, 1995 AND SEPTEMBER 30, 1995 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED DECEMBER 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
- 2 -
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS 12/31/95 9/30/95
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
---------------
CASH AND CASH EQUIVALENTS $ 1,244,648 $ 4,408,135
ACCOUNTS AND NOTES RECEIVABLE 905,828 729,778
INVENTORIES 7,569,588 7,676,352
OTHER PREPAID EXPENSES 34,976 155,864
----------- -----------
TOTAL CURRENT ASSETS 9,755,040 12,970,129
----------- -----------
INVESTMENT IN MARKETABLE SECURITIES 3,210,597 0
-----------------------------------
PROPERTY, PLANT AND EQUIPMENT-NET 989,099 1,011,209
---------------------------------
OTHER ASSETS 23,069 0
------------ ----------- -----------
TOTAL ASSETS $13,977,805 $13,981,338
============ =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
--------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 281,502 $ 389,841
CURRENT PORTION OF CAPITALIZED LEASE 22,700 20,996
----------- -----------
TOTAL CURRENT LIABILITIES 304,202 410,837
----------- -----------
LONG-TERM LIABILITIES:
----------------------
LONG-TERM PORTION OF CAPITAL LEASE 50,022 57,012
DEFERRED INCOME TAXES 135,800 108,800
----------- -----------
TOTAL LONG-TERM LIABILITIES 185,822 165,812
----------- -----------
SHAREHOLDERS' EQUITY 13,487,781 13,404,689
-------------------- ----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $13,977,805 $13,981,338
======================================== =========== ===========
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
(UNAUDITED)
12/31/95 12/31/94
---------- ----------
<S> <C> <C>
SALES $ 890,711 $ 573,324
COST OF SALES 559,493 362,136
---------- ----------
GROSS PROFIT 331,218 211,188
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 242,755 291,269
---------- ----------
OPERATING INCOME 88,463 ( 80,081)
OTHER INCOME:
INTEREST INCOME 56,015 78,241
INTEREST EXPENSE ( 19,800) ( 20,072)
OTHER, NET 417 552
---------- ----------
INCOME BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 125,095 ( 21,360)
PROVISION (BENEFIT) FOR
INCOME TAXES 42,000 ( 7,100)
---------- ----------
NET INCOME $ 83,095 $( 14,260)
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ 0.02 $ 0.00
========== ==========
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
12/31/95 12/31/94
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 83,095 $( 14,260)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 25,021 26,368
CHANGES IN OPERATING ACTIVITIES:
(INCR) DECR IN ACCOUNTS RECEIVABLE ( 176,051) ( 219,358)
(INCR) DECR IN INVENTORY 106,764 20,453
(INCR) DECR IN OTHER ASSETS 97,819 94,049
(DECR) INCR IN ACCOUNTS PAYABLE AND
ACCRUED EXPENSES ( 123,341) ( 158,985)
(DECR) INCR IN ACCRUED INCOME TAX 15,000 0
INCR IN DEFERRED INCOME TAX 27,000 20,900
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES 55,307 ( 230,833)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT ( 2,911) 0
SALES (PURCHASES) OF INVESTMENTS - NET (3,210,597) 50,163
------------ ------------
NET CASH FROM INVESTING ACTIVITIES (3,213,508) 50,163
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENT OF CAPITAL LEASE ( 5,286) ( 5,286)
----------- -----------
NET INCREASE (DECREASE) IN CASH (3,163,487) ( 185,956)
CASH AT BEGINNING OF PERIOD 4,408,135 961,403
------------ ------------
CASH AT END OF PERIOD $ 1,244,648 $ 775,447
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE YEAR FOR INTEREST $ 0 $ 38,068
============ ============
CASH PAID DURING THE YEAR FOR INCOME
TAXES $ 0 $ 0
============ ============
</TABLE>
- 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 THREE MONTHS ENDED DECEMBER 31, 1995, ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR THE
FISCAL YEAR ENDING SEPTEMBER 30, 1996.
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>
12/31/95 9/30/95
---------- -----------
<S> <C> <C>
RAW MATERIALS $1,518,506 $1,609,299
WORK IN PROCESS 3,276,104 3,047,844
FINISHED GOODS 2,774,978 3,019,209
----------- -----------
$7,569,588 $7,676,352
=========== ===========
</TABLE>
- 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
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 $135,800 AT DECEMBER 31, 1995, AND $108,800
AT SEPTEMBER 30, 1995. 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:
NONE.
- 7 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT OF OPERATIONS
LIQUIDITY:
----------
DURING THE FIRST QUARTER OF THE CURRENT FISCAL YEAR ENDING
DECEMBER 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 THREE MONTH PERIOD, CASH AND
SHORT TERM INVESTMENTS MAINTAINED AN AVERAGE BALANCE OF $ 1,354,000,
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 THREE MONTHS OF THE CURRENT FISCAL YEAR, THE
COMPANY EXPENDED $2,911 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 FIRST QUARTER OF THE CURRENT FISCAL YEAR ENDED
DECEMBER 31, 1995, SHIPMENTS WERE $ 890,711, UP FROM SHIPMENTS OF $ 573,324
OR 55% FOR THE SAME QUARTER ONE YEAR AGO AND DOWN $ 194,190 OR 18% FOR THE
FIRST QUARTER ENDED DECEMBER 31, 1993. EXPORT SHIPMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1995 WERE $ 472.118 OR 53% OF TOTAL SALES, UP $ 148,009
OR 45.7% FROM THE SAME PERIOD ONE YEAR AGO. DOMESTIC SHIPMENTS FOR THE FIRST
THREE MONTHS OF THE CURRENT FISCAL YEAR WERE $ 418,593, COMPARABLE TO
SHIPMENTS FOR THE SAME PERIOD ONE YEAR AGO OF $ 249,215, UP $ 169,378 OR
68%. MANAGEMENT CONTINUES TO MONITOR SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES WHICH DECREASED $ 48,514 FROM THE SAME PERIOD ONE YEAR AGO. THE
DIRECT LABOR FORCE CONTINUES AT A REDUCED LEVEL DUE TO SUFFICIENT INVENTORY
LEVELS IN FINISHED GOODS.
- 8 -
<PAGE>
RESULTS OF OPERATIONS: (CONTINUED)
----------------------
THE 9000 SERIES OF COMMUNICATION EQUIPMENT CONTINUES TO
RECEIVE CONSIDERABLE INTEREST IN THE FOREIGN MARKETS ALTHOUGH FUNDING
CONTINUES TO BE TIGHT. THE DOMESTIC MARKET CONTINUES TO REFLECT A LIMITED
NUMBER OF PROGRAMS AND NECESSARY FUNDING. HOWEVER, THERE IS CONTINUED
INTEREST IN THE DOMESTIC MARKET FOR SUNAIR EQUIPMENT ALSO. INTEREST IN THE
AIRBORNE LINE HAS BEEN LESS THAN ANTICIPATED BUT THE COMPANY REMAINS
OPTIMISTIC. ON THE INTERNATIONAL SCENE, CONTINUED ACTIVITY FOR NEW AND
DEVELOPING PROGRAMS IS STRONG. TRAVEL TO THE MIDDLE EAST IS SCHEDULED FOR
THE NEAR FUTURE 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.
- 9 -
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
ON NOVEMBER 16, 1995, THE COMPANY ISSUED A REPORT ON FORM 8-K
TO ADVISE OF THE RESIGNATION OF EVERETT A. COOPER AS A DIRECTOR EFFECTIVE
SEPTEMBER 30, 1995, FOR HEALTH REASONS.
ON NOVEMBER 16, 1995, THE COMPANY ISSUED A REPORT ON FORM
8-K TO ADVISE OF THE APPOINTMENT OF GEORGE F. ARATA, JR. TO THE BOARD OF
DIRECTORS EFFECTIVE OCTOBER 3, 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.
FEBRUARY 8, 1996 /S/ ROBERT URICHO, JR.
DATE _________________ _____________________________
ROBERT URICHO, JR., PRINCIPAL
EXECUTIVE OFFICER
FEBRUARY 8, 1996 /S/ SYNNOTT B. DURHAM
DATE _________________ ____________________________
SYNNOTT B. DURHAM, PRINCIPAL
ACCOUNTING OFFICER
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,244,648
<SECURITIES> 3,210,597
<RECEIVABLES> 905,828
<ALLOWANCES> 300
<INVENTORY> 7,569,588
<CURRENT-ASSETS> 9,755,040
<PP&E> 4,027,173
<DEPRECIATION> 3,038,074
<TOTAL-ASSETS> 13,977,805
<CURRENT-LIABILITIES> 304,202
<BONDS> 0
0
0
<COMMON> 480,074
<OTHER-SE> 13,007,707
<TOTAL-LIABILITY-AND-EQUITY> 13,977,805
<SALES> 890,711
<TOTAL-REVENUES> 946,726
<CGS> 559,493
<TOTAL-COSTS> 559,493
<OTHER-EXPENSES> 242,755
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 19,800
<INCOME-PRETAX> 125,095
<INCOME-TAX> 42,000
<INCOME-CONTINUING> 83,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,095
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
