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, 1996 COMMISSION FILE NUMBER 1-4334
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SUNAIR ELECTRONICS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-0780772
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(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
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NONE
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(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 03/31/96 - 3,932,370 SHARES
(NET OF TREASURY SHARES)
<PAGE>
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION:
CONSOLIDATED CONDENSED BALANCE SHEETS - -
MARCH 31, 1996 AND SEPTEMBER 30, 1995 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
SIX MONTHS ENDED MARCH 31, 1996 AND 1995. 4
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
SIX MONTHS ENDED MARCH 31, 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
03/31/96 9/30/95
--------- ---------
ASSETS UNAUDITED AUDITED
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 1,655,110 $ 4,408,135
ACCOUNTS AND NOTES RECEIVABLE 1,093,858 729,778
INVENTORIES 7,297,280 7,676,352
OTHER PREPAID EXPENSES 74,283 155,864
----------- -----------
TOTAL CURRENT ASSETS 10,120,531 12,970,129
----------- -----------
INVESTMENT IN MARKETABLE SECURITIES 3,203,429 0
PROPERTY, PLANT AND EQUIPMENT-NET 988,997 1,011,209
OTHER ASSETS 26,282 0
----------- -----------
TOTAL ASSETS $14,339,239 $13,981,338
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 552,269 $ 389,841
CURRENT PORTION OF CAPITALIZED LEASE 23,094 20,996
----------- -----------
TOTAL CURRENT LIABILITIES 575,363 410,837
----------- -----------
LONG-TERM LIABILITIES:
LONG-TERM PORTION OF CAPITAL LEASE 44,240 57,012
DEFERRED INCOME TAXES 163,300 108,800
----------- -----------
TOTAL LONG-TERM LIABILITIES 207,540 165,812
----------- -----------
SHAREHOLDERS' EQUITY 13,556,336 13,404,689
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $14,339,239 $13,981,338
=========== ===========
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<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
SIX MONTHS ENDED
3/31/96 3/31/95
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SALES $2,000,372 $1,196,053
COST OF SALES 1,270,747 699,589
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GROSS PROFIT 729,625 496,464
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 580,429 611,852
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OPERATING INCOME 149,196 (115,388)
OTHER INCOME:
INTEREST INCOME 116,073 154,442
INTEREST EXPENSE ( 39,498) ( 40,050)
OTHER, NET 1,380 1,234
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INCOME BEFORE PROVISION
FOR INCOME TAXES 227,151 238
PROVISION FOR
INCOME TAXES 75,500 0
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NET INCOME $ 151,651 238
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ 0.04 $ 0.00
========== ==========
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<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
------------------
3/31/96 3/31/95
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SALES $1,109,661 622,729
COST OF SALES 711,254 337,453
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GROSS PROFIT 398,407 285,276
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 337,674 320,583
---------- ----------
OPERATING INCOME 60,733 ( 35,307)
OTHER INCOME:
INTEREST INCOME 60,058 76,201
INTEREST EXPENSE ( 19,698) ( 19,978)
OTHER, NET 963 682
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INCOME BEFORE PROVISION
FOR INCOME TAXES 102,056 21,598
PROVISION FOR
INCOME TAXES 33,500 7,100
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NET INCOME $ 68,556 14,498
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ 0.02 $ 0.00
========== ==========
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<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
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3/31/96 3/31/95
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 151,651 $ 238
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 50,043 52,907
CHANGES IN OPERATING ACTIVITIES:
(INCR) DECR IN ACCOUNTS RECEIVABLE ( 364,080) ( 204,966)
(INCR) DECR IN INVENTORY 379,072 ( 315,346)
(INCR) DECR IN OTHER ASSETS 55,299 55,810
(DECR) INCR IN ACCOUNTS PAYABLE AND
ACCRUED EXPENSES 141,424 ( 125,858)
(DECR) INCR IN ACCRUED INCOME TAX 21,000 0
INCR IN DEFERRED INCOME TAX 54,500 40,000
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NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 488,909 ( 497,215)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT ( 27,831) ( 1,216)
SALES (PURCHASES) OF INVESTMENTS - NET ( 3,203,429) 50,530
------------ ------------
NET CASH FROM (USED BY)
INVESTING ACTIVITIES ( 3,231,260) 49,314
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CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENT OF CAPITAL LEASE ( 10,674) ( 9,893)
------------ ------------
NET (DECREASE) IN CASH ( 2,753,025) ( 457,794)
CASH AT BEGINNING OF PERIOD 4,408,135 961,403
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CASH AT END OF PERIOD $ 1,655,110 $ 503,609
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD $ 0 $ 38,068
FOR INTEREST ============ ============
CASH PAID DURING THE PERIOD FOR INCOME
TAXES $ 0 $ 0
============ ============
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<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, 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:
3/31/96 9/30/95
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RAW MATERIALS $1,578,922 $1,609,299
WORK IN PROCESS 3,246,756 3,047,844
FINISHED GOODS 2,471,602 3,019,209
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$7,297,280 $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.
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<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 $163,600 AT MARCH 31, 1996, 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:
AS OF MARCH 31, 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 QUARTER OF THE CURRENT FISCAL YEAR ENDING MARCH 31, 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 SIX MONTH PERIOD, CASH AND SHORT TERM INVESTMENTS MAINTAINED AN AVERAGE
BALANCE OF $1,515,000, 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 SIX MONTHS OF THE CURRENT FISCAL YEAR, THE COMPANY EXPENDED
$27,831 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, 1996,
SHIPMENTS WERE $1,109,661 UP FROM $890,711 FOR THE QUARTER ENDED DECEMBER 31,
1995. SHIPMENTS FOR THE SIX MONTHS ENDED MARCH 31, 1996 WERE $2,000,372, UP FROM
$1,196,053, OR 67.2% FOR THE SAME PERIOD ONE YEAR AGO AND UP $303,195 OR 17.9%
FROM THE SIX MONTHS ENDED MARCH 31, 1994. EXPORT SHIPMENT FOR THE SIX MONTHS
ENDED MARCH 31, 1996 WERE $1,390,608 OR 69.5% OF TOTAL SALES, UP $918,490 OR
194.5% FROM THE SAME PERIOD ONE YEAR AGO. DOMESTIC SHIPMENTS FOR THE FIRST SIX
MONTHS OF THE CURRENT FISCAL YEAR WERE $609,764 SLIGHTLY AHEAD OF SHIPMENTS FOR
THE SAME PERIOD ONE YEAR AGO OF $531,020. SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES DECREASED $31,423 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 IS SCHEDULED FOR
DEMONSTRATION FOR THE FIRST TIME IN THE MIDDLE EAST IN APRIL. TRAVEL TO THE
MIDDLE EAST AND THE PACIFIC RIM IS SCHEDULED FOR THE 3RD QUARTER TO PURSUE
EXISTING AND FUTURE PROJECTS. THE PROCUREMENT CYCLE CONTINUES, HOWEVER, TO BE
EXTREMELY LONG. THE DOMESTIC MARKET REMAINS SLUGGISH AT PRESENT, HOWEVER, THE
LONG RANGE PROJECTS SHOW SOME IMPROVEMENT.
- 10 -
<PAGE>
PART II OTHER INFORMATION
5. OTHER INFORMATION
ON FEBRUARY 1, 1996, MR. MANUEL GARRIDO ACCEPTED A POSITION WITH THE
COMPANY AS VICE PRESIDENT - OPERATIONS. MR. GARRIDO; HOLDER OF AN
MBA DEGREE, COMES TO SUNAIR WITH MANY YEARS OF EXPERIENCE IN THE H.F.
INDUSTRY.
6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
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<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.
MAY 8, 1996 /s/ ROBERT URICHO, JR.
DATE _________________ -----------------------------
ROBERT URICHO, JR., PRINCIPAL
EXECUTIVE OFFICER
MAY 8, 1996 /s/ SYNNOTT B. DURHAM
DATE _________________ ----------------------------
SYNNOTT B. DURHAM, PRINCIPAL
ACCOUNTING OFFICER
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,655,110
<SECURITIES> 3,203,429
<RECEIVABLES> 1,093,858
<ALLOWANCES> 600
<INVENTORY> 7,297,280
<CURRENT-ASSETS> 10,120,531
<PP&E> 4,052,092
<DEPRECIATION> 3,063,096
<TOTAL-ASSETS> 14,339,239
<CURRENT-LIABILITIES> 575,363
<BONDS> 0
0
0
<COMMON> 480,074
<OTHER-SE> 13,556,336
<TOTAL-LIABILITY-AND-EQUITY> 14,339,239
<SALES> 2,000,372
<TOTAL-REVENUES> 2,116,445
<CGS> 1,270,747
<TOTAL-COSTS> 1,270,747
<OTHER-EXPENSES> 580,429
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 39,498
<INCOME-PRETAX> 227,151
<INCOME-TAX> 75,500
<INCOME-CONTINUING> 151,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,651
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
