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, 1997 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 03/31/97 - 3,932,370 SHARES
<PAGE>
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
INDEX
*****
PAGE NO.
********
PART I. FINANCIAL INFORMATION:
CONSOLIDATED CONDENSED BALANCE SHEETS - -
MARCH 31, 1997 AND SEPTEMBER 30, 1996 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
SIX MONTHS ENDED MARCH 31, 1997 AND 1996. 4
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
SIX MONTHS ENDED MARCH 31, 1997 AND 1996 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)
ASSETS 03/31/97 9/30/96
----------- -----------
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 1,010,598 $ 1,721,839
ACCOUNTS AND NOTES RECEIVABLE 318,109 181,173
INVENTORIES 7,784,282 7,402,036
OTHER PREPAID EXPENSES 49,288 150,080
----------- -----------
TOTAL CURRENT ASSETS 9,162,277 9,455,128
----------- -----------
INVESTMENT IN MARKETABLE SECURITIES 3,174,759 3,189,094
PROPERTY, PLANT AND EQUIPMENT-NET 916,518 966,784
OTHER ASSETS 9,970 0
----------- -----------
TOTAL ASSETS $13,263,524 $13,611,006
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 142,149 $ 247,289
CURRENT PORTION OF CAPITALIZED LEASE 23,634 22,720
----------- -----------
TOTAL CURRENT LIABILITIES 165,783 270,009
----------- -----------
LONG-TERM LIABILITIES:
LONG-TERM PORTION OF CAPITAL LEASE 21,095 33,527
LONG-TERM PORTION OF INCOME TAXES PAYABLE 920,000 932,000
----------- -----------
TOTAL LONG-TERM LIABILITIES 941,095 965,527
----------- -----------
SHAREHOLDERS' EQUITY 12,156,646 12,375,470
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $13,263,524 $13,611,006
=========== ===========
- 3 -
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
SIX MONTHS ENDED
------------------------
3/31/97 3/31/96
---------- ----------
SALES $1,002,860 $2,000,372
COST OF SALES 700,298 1,270,747
---------- ----------
GROSS PROFIT 302,562 729,625
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 769,218 580,429
---------- ---------
OPERATING INCOME ( 466,656) 149,196
OTHER INCOME:
INTEREST INCOME 120,642 116,073
INTEREST EXPENSE ( 2,028) ( 39,498)
OTHER, NET 2,123 1,380
---------- ----------
INCOME BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES ( 345,919) 227,151
PROVISION (BENEFIT) FOR
INCOME TAXES ( 127,100) 75,500
---------- ----------
NET INCOME $( 218,819) 151,651
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ (0.06) $ 0.04
========== ==========
- 4 -
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
------------------------
3/31/97 3/31/96
---------- ---------
SALES $ 540,279 $1,109,661
COST OF SALES 369,565 711,254
---------- ---------
GROSS PROFIT 170,714 398,407
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 402,343 337,674
---------- ----------
OPERATING INCOME ( 231,629) 60,733
OTHER INCOME:
INTEREST INCOME 58,975 60,058
INTEREST EXPENSE ( 933) ( 19,698)
OTHER, NET 594 963
---------- ----------
INCOME BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES ( 172,993) 102,056
PROVISION (BENEFIT) FOR
INCOME TAXES ( 60,500) 33,500
---------- ----------
NET INCOME $( 112,493) $ 68,556
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ (0.03) $ 0.02
========== ==========
- 5 -
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
-------------------------
3/31/97 3/31/96
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $( 218,819) $ 151,651
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 52,605 50,043
CHANGES IN OPERATING ACTIVITIES:
(INCR) DECR IN ACCOUNTS RECEIVABLE ( 136,936) ( 364,080)
(INCR) DECR IN INVENTORY ( 382,246) 379,072
(INCR) DECR IN OTHER ASSETS ( 4,233) 55,299
(DECR) INCR IN ACCOUNTS PAYABLE AND
ACCRUED EXPENSES 119,345 141,424
(DECR) INCR IN ACCRUED INCOME TAX ( 127,100) 21,000
INCR IN DEFERRED INCOME TAX 0 54,500
----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES ( 697,384) 488,909
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT ( 2,339) ( 27,831)
SALES (PURCHASES) OF INVESTMENTS - NET 0 (3,203,429)
----------- -----------
NET CASH FROM (USED BY)
INVESTING ACTIVITIES ( 2,339) (3,231,260)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENT OF CAPITAL LEASE ( 11,518) ( 10,674)
----------- -----------
NET (DECREASE) IN CASH ( 711,241) (2,753,025)
CASH AT BEGINNING OF PERIOD 1,721,839 4,408,135
----------- -----------
CASH AT END OF PERIOD $ 1,010,598 $ 1,655,110
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD $ 0 $ 0
FOR INTEREST =========== ===========
CASH PAID DURING THE PERIOD FOR INCOME
TAXES $ 0 $ 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 SIX MONTHS ENDED MARCH 31, 1997 ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR THE
FISCAL YEAR ENDING SEPTEMBER 30,1997. 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, 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:
3/31/97 9/30/96
---------- ----------
RAW MATERIALS $1,411,490 $1,507,724
WORK IN PROCESS 4,117,985 3,341,022
FINISHED GOODS 2,254,807 2,553,290
---------- ----------
$7,784,282 $7,402,036
========== ==========
(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:
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 $98,000 PER
YEAR. INTEREST WILL NO LONGER ACCRUE ON THE UNPAID PORTION OF THE
TAX AMOUNT.
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
- 8 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY:
- ----------
DURING THE FIRST SIX MONTHS OF THE CURRENT FISCAL YEAR ENDING MARCH 31, 1997,
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 $1,248,000, COMPARED TO AN AVERAGE BALANCE OF $1,626,000 FOR
THE TWELVE MONTHS ENDED SEPTEMBER 30,1996 OR AN AVERAGE BALANCE OF $2,968,000
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1995. 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 1997. 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 $
2,339 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, 1997,
SHIPMENTS WERE $540,279 UP FROM $462,581 FOR THE QUARTER ENDED DECEMBER 31,
1996. SHIPMENTS FOR THE SIX MONTHS ENDED MARCH 31, 1997 WERE $1,002,860, DOWN
FROM $2,000,372, OR 49.9% FOR THE SAME PERIOD ONE YEAR AGO AND DOWN $193,193 OR
16.2% FROM THE SIX MONTHS ENDED MARCH 31, 1995. EXPORT SHIPMENTS FOR THE SIX
MONTHS ENDED MARCH 31, 1997 WERE $414,046 OR 41.2% OF TOTAL SALES, DOWN $976,562
OR 70.2% FROM THE SAME PERIOD ONE YEAR AGO. DOMESTIC SHIPMENTS FOR THE FIRST SIX
MONTHS OF THE CURRENT FISCAL YEAR WERE $588,814 OR 3.4% BEHIND SHIPMENTS FOR THE
SAME PERIOD ONE YEAR AGO OF $609,764. SELLING,
- 9 -
<PAGE>
RESULTS OF OPERATIONS: (CONTINUED)
- ----------------------
GENERAL AND ADMINISTRATIVE EXPENSES INCREASED $188,789 FROM THE SAME
PERIOD ONE YEAR AGO DUE TO INCREASED MARKETING EFFORTS AND INCREASED
PERSONNEL. THE DIRECT LABOR FORCE CONTINUES AT A REDUCED LEVEL DUE TO
SUFFICIENT INVENTORY LEVELS IN FINISHED GOODS.
SHIPMENTS WERE LOW FOR THE FIRST SIX MONTHS DUE TO A CUSTOMERS IN-PLANT
INSPECTION DATE OCCURRING IN APRIL. THE BACKLOG AT MARCH 31, 1997 WAS $
1,386,025, OF WHICH THE SHIPMENT OF THE MAJORITY IS PLANNED FOR THE THIRD
QUARTER. NEGOTIATIONS CONTINUE FOR PROGRAMS WITH THE U.S. GOVERNMENT AS WELL AS
INTERNATIONAL SHIPBOARD PROGRAMS.
MARKETING ACTIVITY CONTINUES TO FOCUS IN THE PACIFIC RIM AREA WHERE HF
REQUIREMENTS APPEAR AND FOR WHICH BUDGETS ARE KNOWN TO EXIST. ONE TRIP TO THE
PACIFIC RIM OCCURRED IN THE SECOND QUARTER RESULTING IN SEVERAL MAJOR PROGRAMS
BEING ADDRESSED. THE COMPANY CONTINUES TO BE OPTIMISTIC ABOUT FUTURE
REQUIREMENTS EVEN THOUGH THE PROCUREMENT CYCLE CONTINUES TO BE EXTREMELY LONG.
- 10 -
<PAGE>
PART II OTHER INFORMATION
5. OTHER INFORMATION
EFFECTIVE FEBRUARY 15, 1997, MR. MANUEL GARRIDO TERMINATED HIS
ASSOCIATION WITH THE COMPANY AS VICE PRESIDENT- OPERATIONS.
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.
MAY 12, 1997 /S/ ROBERT URICHO, JR.
DATE_______________ ________________________
ROBERT URICHO, JR., PRINCIPAL
EXECUTIVE OFFICER
MAY 12, 1997 /S/ SYNNOTT B. DURHAM
DATE_______________ ____________________________
SYNNOTT B. DURHAM, PRINCIPAL
ACCOUNTING OFFICER
- 12 -
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000095366
<NAME> SUNAIR ELECTRONICS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,010,598
<SECURITIES> 3,174,759
<RECEIVABLES> 318,109
<ALLOWANCES> 600
<INVENTORY> 7,784,282
<CURRENT-ASSETS> 9,162,277
<PP&E> 4,002,716
<DEPRECIATION> 3,086,198
<TOTAL-ASSETS> 13,263,524
<CURRENT-LIABILITIES> 165,783
<BONDS> 0
0
0
<COMMON> 393,237
<OTHER-SE> 11,763,409
<TOTAL-LIABILITY-AND-EQUITY> 13,263,524
<SALES> 1,002,860
<TOTAL-REVENUES> 1,123,597
<CGS> 700,298
<TOTAL-COSTS> 700,298
<OTHER-EXPENSES> 769,218
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 2,028
<INCOME-PRETAX> (345,919)
<INCOME-TAX> (127,100)
<INCOME-CONTINUING> (218,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (218,819)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
