UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
Commission file number I-4334
SUNAIR ELECTRONICS, INC.
A Florida Corporation I.R.S. Employer I.D. No. 59-0780772
Executive Offices, 3101 S.W. Third Avenue
Fort Lauderdale, FL 33315
Telephone (954) 525-1505
Securities registered pursuant to section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common (Par Value 10 Cents) American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
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 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 ___
The aggregate market value of the voting stock held by non-affiliates of the
registrant approximated $3,526,370 as of December 13, 1996 based on the closing
price of stock on the American Stock Exchange on said date.
Registrant's common stock - par value 10 cents, outstanding as of November 30,
1996 - 3,932,370 shares.
Documents Incorporated by Reference:
Portions of the annual shareholders' report for the years ended September 30,
1996 and September 30, 1995 are incorporated by reference into Parts I and II.
This Annual Report on Form 10-K has 21 pages. The exhibit index (Item 14a) is on
page 20.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Sunair Electronics, Inc. is a Florida corporation organized in 1956. It is
engaged in the design, manufacture and sale of high frequency single sideband
communications equipment utilized for long range voice and data communications
in fixed station, airborne, mobile and marine "para-military" applications.
MARKETS
Sunair products are marketed both domestically and internationally and are
primarily intended for strategic military and other governmental applications.
Sales are executed direct through systems engineering companies, worldwide
commercial and business airframe manufacturers or direct to the U.S. Government
for foreign military assistance.
PRODUCTS
Sunair's line of equipment is composed of proprietary HF/SSB radio equipment and
ancillary items sold as operating units or combined into sophisticated systems
that may interface with teleprinters, antennae, power sources, modems, message
switching devices, cryptographic equipment and the like provided by others.
Sunair products employ advanced solid state designs with computer controlled
networking capabilities. Principal product areas are as follows:
High frequency transceivers
High frequency receivers
High frequency exciters
Automatic antenna couplers
Linear power amplifiers
Computer remote control systems
Digital modems
Frequency management systems
Transportable systems
High frequency airborne transceivers
In addition, the Company custom designs systems incorporating various
combinations of the above into equipment racks and control consoles that may
interface with products and systems of other manufacturers.
2
<PAGE>
DISTRIBUTION
Sunair sells through a network of dealers and representatives located throughout
the United States and over 100 other nations. In addition, sales are made on a
direct basis to airframe manufacturers and segments of the U.S. government. A
substantial amount of the Company's sales are made to customers outside the
United States and are handled through its wholly owned subsidiary, Sunair
International Sales Corp. The Company maintains a sales and service organization
geared to train and assist not only its dealers, but larger governmental users
throughout the world. Training programs are conducted at the Company's
facilities and in the field.
The following is included to supplement the business information.
a. Sunair competes with other US and foreign companies several of which have
substantially greater sales and assets than Sunair.
b. The backlog of unfilled orders of the Company as of September 30 is as
follows:
1996 1995
-------- --------
$ 45,840 $366,819
All orders at September 30, 1996 are expected to be shipped within the current
fiscal year. Sunair attempts to fill most orders from its finished goods stock
and thus does not look to backlog as a major indication of activity.
c. Raw materials, purchased parts and related items are available from various
suppliers located throughout the country. Management believes that the items
required in the manufacture of its electronic equipment are available in
sufficient quantities to meet manufacturing requirements with some extended
deliveries.
d. The Company maintains an engineering department which included four engineers
and two other technical personnel in 1996. During the fiscal years ended
September 30, 1994, 1995 and 1996, Sunair expended $251,000, $268,000 and
$115,000 respectively, on product development and engineering.
e. The Company had 41 active full time employees at the end of the fiscal year.
f. In the opinion of the Company, its business is subject to limited seasonal
variation.
g. Essentially all export sales are covered by irrevocable letters of credit or
sight drafts. It is believed that over 80% of the non-US Government sales
ultimately enter the export market either directly or via resale by domestic
customers. For amounts of export sales by geographic area, sales to governmental
agencies of the U.S. and to foreign governments for the years ended September
30, 1996, 1995 and 1994, see Note 7 to the consolidated financial statements
included in Item 8 herein.
3
<PAGE>
ITEM 2. PROPERTIES
Manufacturing, Sales and Administrative operations are conducted in Fort
Lauderdale, Florida within two concrete block buildings containing approximately
67,700 sq. ft. of floor space on approximately 10 acres of land, all of which is
owned in fee simple by the Company.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year to a vote
of security holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The following table sets forth the high and low sale price of the Company's
common stock as traded on the American Stock Exchange under the symbol SNR.
1996
----
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- --------
High 2 13/16 2 11/16 4 3/8 3 1/2
Low 2 3/16 2 2 1/8 2 1/2
1995
----
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- --------
High 2 1 15/16 2 1/8 2 1/4
Low 1 13/16 1 13/16 1 13/16 1 13/16
(b) As of December 1, 1996, it is estimated that there were approximately 700
shareholders of record.
4
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $ 2,930,620 $ 3,333,268 $ 2,494,777 $ 5,903,533 $ 8,010,176
Cost of sales 1,967,720 2,113,354 1,388,600 3,797,138 5,029,441
----------- ------------ ------------ ------------ ------------
Gross profit 962,900 1,219,914 1,106,177 2,106,395 2,980,735
Selling, general and
administrative expenses 1,292,323 1,168,238 1,340,877 1,455,527 1,580,539
----------- ------------ ------------ ------------ ------------
Income (loss) from operations (329,423) 51,676 (234,700) 650,868 1,400,196
----------- ------------ ------------ ------------ ------------
Other income (deductions)
Interest income 238,127 232,523 321,609 333,614 211,700
Interest expense (20,719) (79,718) (43,913) (32,693) (52,527)
Other income (expenses) 5,013 10,788 (39,760) 42,028 18,897
----------- ------------ ------------ ------------ ------------
222,421 163,593 237,936 342,949 178,070
----------- ------------ ------------ ------------ ------------
Income (loss) before provision
(benefit) for income taxes (107,002) 215,269 3,236 993,817 1,578,266
Provision (benefit) for income
taxes 922,217 47,800 (4,000) 186,000 441,000
----------- ------------ ------------ ------------ -------------
Net income (loss) before (1,029,219) 167,469 7,236 807,817 1,137,266
extraordinary income
Extraordinary income, net of 0 0 0 0 243,000
income tax ----------- ------------ ------------ ------------ -------------
Net income (loss) $(1,029,219) $ 167,469 $ 7,236 $ 807,817 $ 1,380,266
=========== ============ ============ ============ ===========
Net income (loss) per common share:
Before extraordinary income $(0.26) $0.04 $0.00 $0.21 $0.29
Extraordinary income
0.00 0.00 0.00 0.00 0.06
---------- ----------- ------------ ------------ -----------
Net income (loss) $(0.26) $0.04 $0.00 $0.21 $0.35
========== =========== ============ ============ ===========
Average shares outstanding 3,932,370 3,932,370 3,932,370 3,932,257 3,931,620
Cash dividend per share $0.00 $0.00 $0.00 $0.00 $0.00
Working capital year end $ 9,185,119 $12,559,292 $ 8,396,050 $10,307,839 $ 9,437,728
Total Assets $13,611,006 $13,981,338 $13,783,537 $13,728,032 $13,032,921
Stockholders' equity per share $3.15 $3.41 $3.37 $3.36 $3.16
</TABLE>
5
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT OF OPERATIONS
LIQUIDITY
During the fiscal year ended September 30, 1996, the Company had short term
investments and cash or cash equivalents more than adequate to cover known
requirements, unforeseen events or uncertainties that might occur. During this
twelve month period, Cash and Short Term Investments had an average balance of
$1,626,000 as opposed to an average balance of $2,968,000 for the twelve months
ending 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 fiscal
1997. The current ratio of the Company as of September 30, 1996 was 35.0
compared to 31.6 as of September 30, 1995, or 21.7 as of September 30, 1994.
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 twelve months of fiscal 1996, $64,666 was spent for Capital Assets.
These funds were primarily used for new computer hardware and software
development for Sunair equipment. No expenditures are contemplated for Plant
Expansion or Extensive Maintenance. The Company has no long term debt and none
is contemplated other than the long-term lease purchase of the AS400 computer.
Liabilities consist of current accounts payable, accrued expenses related to the
current accounting period and the capital lease.
RESULTS OF OPERATIONS:
During 1996 shipments of $2,931,000 were down 12% or $402,000 from fiscal 1995
and up 17% or $436,000 from fiscal 1994. Domestic shipments of $1,001,000 for
fiscal 1996 were down 45% or $833,000 from fiscal 1995 and down 3% or 35,000
from fiscal 1994. Export shipments for fiscal 1996 were $1,930,000 up 29% or
$431,000 from fiscal 1995 and up 32% or $472,000 from fiscal 1994. The above
comparative sales reflect a continuing sluggish market for domestic and export
activity. Selling, general and administrative expenses increased $124,000 or 11%
from fiscal 1995 but were 4% less than fiscal 1994 expenses. Interest income
remained lower due to lower interest rates.
Sunair is preparing to meet the challenges of increased customer demands in the
area of communication solutions rather than the purchasing of "stand alone"
radio boxes. This means meeting the needs of voice communication, as well as
error free data transfer, facsimile, security, automatic linking and multiple
routing alternatives. We are expanding our capabilities in marketing, customer
support and engineering departments. We have hired a vice president of
operations with experience in system engineering and international business
development to aid in this accomplishment.
We are addressing new geographical markets in Latin America and the middle east
as well as
6
<PAGE>
new market segments. The US Coast Guard continues to show confidence in Sunair
and has selected and approved a radio system(the RT-2400) for a new coastal
patrol boat(CPB) class of 50 plus boats. Sunair continues to be the largest
supplier of HF radio systems to the USCG.
The Company continued to experience delays in the release of contracts from U.
S. government and international agencies. We did, however, sign a follow on
amendment from a foreign navy for delivery of one million dollars in goods.
Delivery is pending receipt of a delivery order anticipated for third quarter of
1997 shipment.
Sunair International Sales Corporation(SISC) a wholly owned subsidiary, was
treated as an Interest Charge-Domestic International Sales Corporation(IC-DISC)
in prior years. This allowed taxes on the income retained in the IC-DISC to be
deferred with interest paid on the accumulated balance of deferred taxes. Prior
to 1994 deferred income taxes were not provided on SISC's prior year's
undistributed retained earnings since it was intended to be indefinitely
invested. These deferred income taxes had accumulated to over $1,000,000 on
undistributed retained earnings of approximately $3,200,000. The Company has
determined it is no longer advantageous to treat SISC as an IC-DISC, and
accordingly, the IC-DISC status was discontinued. This did, however, require
that income taxes be provided for in the current year on the IC-DISC retained
earnings in the amount of $985,000. This not only eliminates the interest paid
each year on the deferred taxes but the Internal Revenue Service also allows
this income to be reported over ten(10) years. With the termination of the
IC-DISC status, the Company has plans to establish a Foreign Sales Corporation
to realize a true tax savings on exported goods, rather than just a deferral.
The termination of the IC-DISC status is necessary to implement a Foreign Sales
Corporation.
7
<PAGE>
PURITZ & WEINTRAUB, LLP
CERTIFIED PUBLIC ACCOUNTANTS
(A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS)
1244 N. UNIVERSITY DRIVE
PLANTATION, FLORIDA 33322
TELEPHONE (954) 370-2727 o FAX (954) 370-2776
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
of Sunair Electronics, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Sunair
Electronics, Inc. and Subsidiary as of September 30, 1996 and 1995 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 1996. 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
misstatements. 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sunair Electronics,
Inc. and Subsidiary as of September 30, 1996 and 1995 and the results of its
operations and cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
November 8, 1996
PURITZ AND WEINTRAUB, LLP
CERTIFIED PUBLIC ACCOUNTANTS
<TABLE>
<CAPTION>
CONSOLIDATED INCOME STATEMENTS YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
Sales $ 2,930,620 $ 3,333,268 $ 2,494,777
Cost of sales 1,967,720 2,113,354 1,388,600
------------ ------------ ------------
Gross profit 962,900 1,219,914 1,106,177
Selling, general and administrative expenses 1,292,323 1,168,238 1,340,877
------------ ------------ ------------
Income (loss) from operations (329,423) 51,676 (234,700)
------------ ------------ ------------
Other income (deductions):
Interest income 238,127 232,523 321,609
Interest expense (20,719) (79,718) (43,913)
Other income (expenses) 5,013 10,788 (39,760)
------------ ------------ ------------
222,421 163,593 237,936
------------ ------------ ------------
Income (loss) before provision
(benefit) for income taxes (107,002) 215,269 3,236
Provision (benefit) for income taxes 922,217 47,800 (4,000)
------------ ------------ ------------
Net income (loss) $ (1,029,219) $ 167,469 $ 7,236
============ ============ ============
Net income (loss) per common share $(0.26) $0.04 $0.00
============ ============ ============
Average shares outstanding 3,932,370 3,932,370 3,932,370
============ ============ ============
</TABLE>
Notes to Consolidated Financial Statements are an integral part of this
statement.
8
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30,
---------------------------
1996 1995
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,721,839 $ 4,408,135
Accounts receivable 181,173 729,778
Inventories 7,402,036 7,676,352
Prepaid expenses and other current assets 150,080 155,864
----------- -----------
9,455,128 12,970,129
INVESTMENTS 3,189,094 0
PROPERTY, PLANT, AND EQUIPMENT:
Land 224,299 224,299
Buildings and improvements 1,690,998 1,684,728
Machinery and equipment 2,085,080 2,115,055
----------- -----------
4,000,377 4,024,082
Less: Accumulated depreciation 3,033,593 3,012,873
----------- -----------
966,784 1,011,209
$13,611,006 $13,981,338
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30,
---------------------------
1996 1995
---------- ----------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 247,289 $ 389,841
Current portion of capitalized lease 22,720 20,996
----------- -----------
270,009 410,837
LONG-TERM LIABILITIES:
Long-term portion of capitalized lease 33,527 57,012
Long-term portion of income taxes payable 932,000 0
Deferred income taxes 0 108,800
----------- -----------
965,527 165,812
----------- -----------
1,235,536 576,649
STOCKHOLDERS' EQUITY:
Preferred stock, no par value,
500,000 shares authorized,
no shares issued 0 0
Common stock, $.10 par value, 6,000,000 shares
authorized, 3,932,370 and 4,800,740 shares issued
at September 30, 1996 and 1995 respectively 393,237 480,074
Additional paid-in-capital 2,606,899 2,606,899
Retained earnings 9,375,334 15,274,327
----------- -----------
12,375,470 18,361,300
Less: Cost of treasury stock
(868,370 shares in 1995) 0 (4,956,611)
----------- -----------
12,375,470 13,404,689
----------- -----------
$13,611,006 $13,981,338
=========== ===========
Notes to Consolidated Financial Statements are an integral part of this
statement.
9
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1996 1995 1994
--------------- --------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(1,029,219) $ 167,469 $ 7,236
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 109,091 105,159 109,495
(Increase) decrease in accounts receivable 548,605 (543,044) 200,165
(Increase) decrease in inventory 274,316 (183,967) (591,349)
(Increase) decrease in prepaid and other assets 5,784 5,209 (98,387)
Increase (decrease) in accounts payable and
accrued expenses (142,552) 3,700 (111,907)
Increase in income taxes payable 932,000 0 0
Increase (decrease) in deferred income taxes (108,800) 46,800 62,000
----------- ----------- ------------
Net cash provided by (used in) operating activities 589,225 (398,674) (422,747)
----------- ----------- ------------
INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (64,666) (142,054) (58,891)
Sale (purchase) of investments, net (3,189,094) 4,006,864 (64,093)
----------- ----------- ------------
Net cash provided by (used in) investing activities (3,253,760) 3,864,810 (122,984)
----------- ----------- ------------
FINANCING ACTIVITIES:
Principal payments of capital lease (21,761) (19,404) (13,629)
----------- ----------- ------------
Net cash (used in) financing activities (21,761) (19,404) (13,629)
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents (2,686,296) 3,446,732 (559,360)
Cash and cash equivalents at beginning of the year 4,408,135 961,403 1,520,763
----------- ----------- ------------
Cash and cash equivalents at end of the year $ 1,721,839 $ 4,408,135 $ 961,403
=========== =========== ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 5,225 $ 44,904 $ 43,913
=========== ============ ============
Cash paid during the year for income taxes $ 169,119 $ 0 $ 57,258
=========== ============ ============
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL TREASURY STOCK
----------------------- PAID-IN RETAINED -------------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
--------- ------------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at 9/30/93 4,800,740 $480,074 $2,606,899 $15,099,622 868,370 $(4,956,611)
9/30/94 net income 0 0 0 7,236 0 0
--------- ------------ ------------ ------------ --------- ------------
Balances at 9/30/94 4,800,740 480,074 2,606,899 15,106,858 868,370 (4,956,611)
9/30/95 net income 0 0 0 167,469 0 0
--------- ------------ ------------ ------------ --------- ------------
Balances at 9/30/95 4,800,740 480,074 2,606,899 15,274,327 868,370 (4,956,611)
9/30/96 net (loss) 0 0 0 (1,029,219) 0 0
--------- ------------ ------------ ------------ --------- ------------
Retirement of
treasury stock (868,370) (86,837) 0 (4,869,774) (868,370) 4,956,611
--------- ------------ ------------ ------------ --------- ------------
Balances at 9/30/96 3,932,370 $393,237 $2,606,899 $ 9,375,334 0 $ 0
========= ============ ============ ============ ========= ============
</TABLE>
Notes to Consolidated Financial Statements are an integral part of this
statement.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Sunair Electronics, Inc. is a Florida corporation organized in 1956. It is
engaged in the design, manufacture and sale of high frequency single
sideband communications equipment utilized for long range voice and data
transmissions in fixed station, airborne, mobile and marine
"para-military" applications.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Sunair Electronics, Inc. and its wholly-owned subsidiary, Sunair
International Sales Corporation, (the "Company"). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION
Sunair Electronics, Inc. and Subsidiary are on the accrual basis of
accounting. Sales revenues are recorded when products are shipped.
Interest and dividends earned on investments are recorded when earned.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash bank accounts, money funds, and
municipal commercial paper with original maturities of three months or
less.
ACCOUNTS RECEIVABLE
Since bad debts are insignificant, the Company uses the direct write-off
method of accounting for uncollectible receivables.
INVENTORIES
Inventories are stated at the lower of cost or market value using the
first in, first out method. Costs include material, labor and overhead.
INVESTMENTS
Investments include Private Export Funding Corporation (PEFCO) notes at
September 30, 1996. These notes are guaranteed by the Export-Import Bank
of the United States, an agency of the United States. The Company has
classified these securities as "held-to-maturity" securities, in
accordance with Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities".
Held-to-maturity securities are recorded at amortized cost. Amortization
of related discounts or premiums is included in the determination of net
income.
In April 1995, the Company sold its long-term investments and invested in
short term municipal bonds. These municipal bonds are reflected in cash
and cash equivalents at September 30, 1995. Approximately $3,200,000 of
the short term municipal bonds were re-invested in PEFCO notes in October
1995.
The following schedule reflects values at September 30, 1996:
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE PRINCIPAL COST MARKET CARRYING
------------------ --------- ---- ------ --------
<S> <C> <C> <C> <C>
PEFCO 7.95% secured note
series UU due November 1, 2006 $2,900,000 $3,215,375 $3,058,601 $3,189,094
========== ========== ========== ==========
</TABLE>
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation is provided
over the estimated useful lives of the assets using both the straight-line
and accelerated methods. The estimated useful lives used to compute
depreciation are as follows:
Buildings and improvements 10 to 30 years
Machinery and equipment 4 to 10 years
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to income as incurred
and amounted to approximately $115,000 in 1996, $268,000 in 1995, and
$251,000 in 1994.
INCOME (LOSS) PER SHARE
Income (loss) per share is based upon the weighted average number of shares
outstanding during each year. Shares subject to options are not included in
the computation since the present effects thereof are not materially
dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECLASSIFICATION
Certain amounts in prior periods have been reclassified to conform to the
1996 presentations.
2. INCOME TAXES
The components of the Company's income tax (benefit) provision are as
follows:
1996 1995 1994
----------- ---------- -------
Current:
Federal $ 841,917 $ 1,000 $(66,000)
State 80,300 0 0
------------ ----------- ---------
922,217 1,000 (66,000)
------------ ----------- ---------
Deferred:
Federal 0 43,000 57,000
State 0 3,800 5,000
------------ ----------- ---------
0 46,800 62,000
------------ ----------- ---------
$ 922,217 $ 47,800 $ (4,000)
============ =========== =========
Income (loss) before income taxes
and use of net operating losses $ (107,002) $215,269 $ 3,236
Income tax 922,217 1,000 0
Income tax benefit due to net
operating loss carryback 0 0 66,000
Deferred income taxes 0 (46,800) (62,000)
------------ ----------- ---------
Net income (loss) $(1,029,219) $167,469 $ 7,236
============ =========== =========
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INCOME TAXES (CONTINUED)
During 1995, it was determined that continued operations of its Interest
Charge-Domestic International Sales Corporation (IC-DISC) subsidiary's
election was no longer advantageous to the Company. Accordingly, the tax
election of the subsidiary was discontinued and its retained earnings of
approximately $3,200,000 were distributed to the Company. Regulations
provide for the taxation of such distribution over a ten year period in
equal annual increments. Upon the assumption the Company's business is
profitable throughout the ten year period, excluding such incremental
income, the aggregate income tax payable as a consequence of such
distribution will approximate a maximum of $985,000 or $98,500 per year.
Interest will no longer accrue on the unpaid portion of the tax amount.
At September 30, 1996 and 1995, the Company has approximately $109,000 of
income tax deposits and benefits to be applied to future periods. These
amounts are included in prepaid expenses and other current assets.
The total provision for 1996 is more than amounts computed by applying the
statutory rates to income before income taxes, and the total provisions
for 1995 and 1994 are less than amounts computed by applying the statutory
rates to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Income taxes at the statutory rates $ (36,381) $ 73,191 $ 1,100
State income taxes, net of federal tax benefit 54,000 0 0
Tax attributable to distributed
earnings of SISC 984,717 0 0
Book/tax difference attributable
to depreciation (40,000) 0 0
Tax free income (10,200) (28,000) (21,000)
Capital losses (22,400) 3,400 19,000
Other (7,519) (791) (3,100)
----------- ----------- ----------
$922,217 $ 47,800 $ (4,000)
=========== =========== ==========
3. INVENTORIES
Inventories consist of the following:
SEPTEMBER 30,
-----------------------------------------------
1996 1995 1994
----------- ----------- ----------
Materials $1,507,724 $1,609,298 $1,506,005
Work in Process 3,341,022 3,047,844 3,222,864
Finished goods 2,553,290 3,019,209 2,763,516
----------- ----------- -----------
$7,402,036 $7,676,351 $7,492,385
=========== =========== ===========
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CAPITAL LEASE
During fiscal year 1994, the Company entered into a capital lease for
an upgrade of computer software and hardware.
Obligations under capital leases require minimum payments as follows:
YEAR ENDING AMOUNT
1997 $26,976
1998 26,976
1999 7,568
Total minimum lease payments $61,520
Less amount representing interest 5,273
---------
Obligations under capital leases 56,247
Less current portion 22,720
---------
$33,527
=========
5. PREFERRED AND COMMON STOCK
The Company has 500,000 authorized shares of preferred stock, no par
value, that may be issued at terms and provisions determined by the
Board of Directors. No shares were issued and outstanding at September
30, 1996 and 1995.
The Company has 6,000,000 authorized shares of common stock, $.10 par
value, that may be issued. At September 30, 1996, the Company retired
868,370 shares of its treasury stock leaving 3,932,370 shares issued and
outstanding. At September 30, 1995, 4,800,740 shares were issued and
3,932,370 shares were outstanding.
During fiscal year ended September 30, 1996, the Board of Directors
approved the issuance of non-qualified stock options entitling an
officer of the Company to purchase up to 100,000 shares of common stock
at $3.00 per share. The options are exercisable at the rate of 20,000
per year following the second year after issuance.
The following is a summary of outstanding stock options:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- --------------------------
NUMBER OF OPTION NUMBER OF OPTION NUMBER OF OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning of year 20,100 $1.375 23,100 $1.375 75,200 $1.375-3.25
Canceled (20,000) 1.375 (3,000) 1.375 (52,100) $1.375-3.25
Granted 100,000 3.000 0 0 0 0
------- ------- ------- -------- --------- -----------
End of Year 100,000 $ 3.000 20,100 $1.375 23,100 $1.375-3.25
======= ======= ======= ======== ========= ===========
</TABLE>
When treasury shares were sold to optionees, proceeds were applied to
treasury stock to the extent of average cost of treasury shares held by
the Company and the difference charged to additional paid in capital.
This reflects the difference between the Company's average cost of
treasury shares of $5.71 and the exercise price per share.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EMPLOYEE BENEFITS
During fiscal year ended September 30, 1996, the Company amended the
employee profit sharing plan to incorporate a 401(k) Plan. Under the
401(k) Plan, eligible employees may contribute up to 15% of their
compensation. The Company may contribute to the Plan at the discretion
of the Board of Directors. During 1996, the Company did not contribute
to the plan.
7. SEGMENT INFORMATION
The Company operates in a single industry, its principal product being
communications equipment.
Sales by geographic area, to U.S. governmental agencies and foreign
governments were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
Geographic area: 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Europe $ 99,528 $ 117,194 $ 356,044
Asia 951,589 911,023 895,295
South America 33,803 129,506 19,792
Africa 618,167 40,541 32,585
North America 1,009,967 1,850,578 1,076,012
Australia 217,566 284,426 115,049
---------- ---------- ----------
$2,930,620 $3,333,268 $2,494,777
========== ========== ==========
Sales to U.S. governmental agencies $ 553,040 $1,461,840 $ 642,967
========== ========== ==========
Direct sales to foreign governments $ 609,167 $ 427,457 $ 80,850
========== ========== ==========
</TABLE>
8. QUARTERLY INFORMATION (UNAUDITED)
Summarized quarterly results of operations and common stock market
values for each quarter of fiscal year ended September 30, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
1 2 3 4
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sales $890,711 $1,109,661 $462,995 $ 467,253
Gross Profit 331,218 398,407 117,450 115,825
Net income 83,095 68,556 (124,331) (1,056,539)
Net income per common share $0.02 $0.01 $(0.03) $(0.26)
========== ========== ========= ===========
Dividends per share None None None None
========== ========== ========= ===========
Market price per share
High 2 13/16 2 11/16 4 3/8 3 1/2
Low 2 3/16 2 2 1/8 2 1/2
1995
---------------------------------------------------------------
1 2 3 4
------------- ---------- ---------- -------------
Sales $573,324 $622,729 $705,074 $1,432,141
Gross Profit 211,188 285,276 268,750 454,700
Net income (14,260) 14,498 25,947 141,284
Net income per common share $0.00 $0.00 $0.00 $0.04
========== ========== ========== ==========
Dividends per share None None None None
========== ========== ========== ==========
Market price per share
High 2 1 15/16 2 1/8 2 1/4
Low 1 13/16 1 13/16 1 13/16 1 13/16
</TABLE>
15
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
FAMILY
NAME AGE POSITION HELD RELATIONSHIP
Robert Uricho, Jr. 81 Chairman of the Husband of
Board, President, Shirley Uricho
Chief Executive
Officer and
Director Since
1956
Shirley Uricho 63 Assistant Wife of
Secretary Robert Uricho
Since 1959
Acting
Secretary
Since 1992
Manuel Garrido 49 Vice President/ None
Operations
Since 1996
James E. Laurent 60 Vice President/ None
Marketing
Since 1988
Synnott B. Durham 55 Cost Manager None
Since 1979
Treasurer, Chief
Financial Officer
Since 1994
Earl M. Anderson, Jr. 71 Director None
Since 1969
George F. Arata, Jr. 67 Director None
Since 1995
Note- All directors' terms are for one year and until their successors are duly
elected and qualified.
17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following information is given on an accrual basis for the year ending
September 30, 1996 with respect to each director of the corporation whose
aggregate salary and fees paid by the Corporation and its subsidiaries were more
than $100,000 and each of the five highest paid officers of the Corporation
whose aggregate direct remuneration exceeded that amount and all officers and
directors of the Corporation as a group.
<TABLE>
<CAPTION>
CASH AND CASH EQUIVALENT
FORMS OF REMUNERATION
------------------------------------------------
SALARIES, FEES, SECURITIES OR PROPERTY
CAPACITY DIRECTOR'S FEES, INSURANCE BENEFITS OR
IN WHICH COMMISSIONS AND REIMBURSEMENTS, PERSONAL
NAME SERVED BONUSES BENEFITS
- ---- ------------------- ---------------- ------------------------
<S> <C> <C>
Robert Chairman of the $175,000 --
Uricho, Jr. Board, President
and Chief Executive
Officer
All Officers
and Directors
(7 Persons
including the 1
named above) $435,011 --
</TABLE>
18
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information is given with respect to any person who to the
knowledge of the Corporation's management owns beneficially more than 5% of any
class of voting securities of the Corporation outstanding on the most recent
record date (exclusive of Treasury shares), and with respect to ownership of
such securities by the Corporation's officers and directors.
(A) Security Ownership of Certain Beneficial Owners
TITLE NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
-------- ------------------- ----------------------- --------
Common Robert Uricho, Jr. *2,272,900 57.80%
Board Chairman & CEO
3101 S.W. 3rd Avenue
Fort Lauderdale, FL
(B) Security Ownership of Management
TITLE NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
-------- ------------------- ----------------------- --------
Common Robert Uricho, Jr. 2,272,900 57.80%
Board Chairman & CEO
3101 S.W. 3rd Avenue
Fort Lauderdale, FL
Common All Other 6,076 **
Officers and Directors
Common All Officers and Directors 2,278,976 57.95%
As a group (7)
* Includes 278,900 shares held by the University of Florida Foundation, Inc.
as Trustee of a Charitable Remainder Unitrust of which Mr. Uricho is the
income beneficiary.
** Less than 1%
(1) Based upon 3,932,370 shares outstanding at December 13, 1996.
While the Corporation has 500,000 authorized shares of preferred stock, no par
value, none have been issued. The only stock outstanding is 10 cents par value
Common Stock.
19
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(a) 1.Financial Statements filed as a part of the Form 10-K
Consolidated Balance Sheets as of
September 30,1996 and 1995 Page 9
Statements of Consolidated Income for each of the
three years in the period ended September 30, 1996 Page 8
Statements of stockholders' equity for each of the
three years in the period ended September 30, 1996 Page 10
Consolidated Statements of Cash Flows for each
of the three years in the period ended September
30, 1996 Page 10
Notes to Consolidated Financial Statements Pages 11-15
(a) 2. Financial Statement Schedules filed as part of the
Form 10-K:
Report on Financial Statements Schedules of
Independent Public Accountants Page 8
Other schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the financial statements or
notes thereto.
Separate financial statements of the Company are omitted
because of the absence of the conditions under which they are
required.
(b) Reports on Form 8-K
None
</TABLE>
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities 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. Date NOVEMBER 19, 1996
-------------------
By /S/ ROBERT URICHO, JR.
--------------------------------
Robert Uricho, Jr.
Chairman of the Board, Director
President and Principal
Executive Officer
By /S/ SYNNOTT B. DURHAM
--------------------------------
Synnott B. Durham
Treasurer and Principal
Accounting Officer
By /S/ SHIRLEY URICHO
--------------------------------
Shirley Uricho
Acting Secretary
By /S/ EARL M. ANDERSON, JR..
--------------------------------
Earl M. Anderson, Jr.
Director
By /S/ GEORGE F. ARATA, JR.
--------------------------------
George F. Arata, Jr.
Director
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,721,839
<SECURITIES> 3,189,094
<RECEIVABLES> 181,173
<ALLOWANCES> 0
<INVENTORY> 7,402,036
<CURRENT-ASSETS> 9,455,128
<PP&E> 4,000,377
<DEPRECIATION> 3,033,593
<TOTAL-ASSETS> 13,611,006
<CURRENT-LIABILITIES> 270,009
<BONDS> 0
0
0
<COMMON> 393,237
<OTHER-SE> 11,982,233
<TOTAL-LIABILITY-AND-EQUITY> 13,611,006
<SALES> 2,930,620
<TOTAL-REVENUES> 3,168,747
<CGS> 1,967,720
<TOTAL-COSTS> 1,967,720
<OTHER-EXPENSES> 1,292,323
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,719
<INCOME-PRETAX> (107,002)
<INCOME-TAX> 922,217
<INCOME-CONTINUING> (1,029,219)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,029,219)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
