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, 1997 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
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(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 06/30/97 - 3,932,370 SHARES
- 1 -
<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 --
JUNE 30, 1997 AND SEPTEMBER 30, 1996 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME --
NINE MONTHS ENDED JUNE 30, 1997 AND 1996 4
CONSOLIDATED CONDENSED STATEMENTS OF INCOME --
THREE MONTHS ENDED JUNE 30, 1997 AND 1996 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS --
NINE MONTHS ENDED JUNE 30, 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
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<PAGE>
PART I. FINANCIAL INFORMATION
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 06/30/97 9/30/96
- ------ -------- -------
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 961,233 $ 1,721,839
ACCOUNTS AND NOTES RECEIVABLE 1,300,951 181,173
INVENTORIES 7,164,745 7,402,036
OTHER PREPAID EXPENSES 90,824 150,080
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TOTAL CURRENT ASSETS 9,517,753 9,455,128
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INVESTMENT IN MARKETABLE SECURITIES 3,167,591 3,189,094
PROPERTY, PLANT AND EQUIPMENT-NET 900,003 966,784
OTHER ASSETS 8,602 0
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TOTAL ASSETS $13,593,949 $13,611,006
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 222,878 $ 247,289
CURRENT PORTION OF CAPITALIZED LEASE 24,104 22,720
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TOTAL CURRENT LIABILITIES 246,982 270,009
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LONG-TERM LIABILITIES:
LONG-TERM PORTION OF CAPITAL LEASE 14,699 33,527
LONG-TERM PORTION OF INCOME TAXES PAYABLE 920,000 932,000
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TOTAL LONG-TERM LIABILITIES 934,699 965,527
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SHAREHOLDERS' EQUITY 12,412,268 12,375,470
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $13,593,949 $13,611,006
=========== ===========
</TABLE>
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<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
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06/30/97 06/30/96
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<S> <C> <C>
SALES $2,891,983 $2,463,367
COST OF SALES 1,950,418 1,616,292
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GROSS 941,565 847,075
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 1,079,309 908,621
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OPERATING INCOME (137,744) (61,546)
OTHER INCOME:
INTEREST INCOME 177,642 178,355
INTEREST EXPENSE (2,848) (4,075)
OTHER, NET 2,953 2,386
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INCOME BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 40,003 115,120
PROVISION (BENEFIT) FOR
INCOME TAXES 3,200 87,800
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NET INCOME $ 36,803 $ 27,320
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ (0.01) $ 0.01
========== ==========
</TABLE>
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<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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06/30/97 06/30/96
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<S> <C> <C>
SALES $1,889,123 $ 462,995
COST OF SALES 1,250,120 345,545
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GROSS PROFIT 639,003 117,450
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 310,091 328,192
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OPERATING INCOME 328,912 (210,742)
OTHER INCOME:
INTEREST INCOME 57,000 62,282
INTEREST EXPENSE (820) 35,423
OTHER, NET 830 1,006
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INCOME BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 385,922 (112,031)
PROVISION FOR
INCOME TAXES 130,300 12,300
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NET INCOME $ 255,622 $ (124,331)
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ 0.07 $ (0.03)
========== ==========
</TABLE>
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<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
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06/30/97 06/30/96
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CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) $ 36,803 $ 27,320
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 75,579 78,311
CHANGES IN OPERATING ACTIVITIES:
(INCR)DECR IN ACCOUNTS RECEIVABLE (1,119,778) 324,226
(INCR)DECR IN INVENTORY 237,291 308,173
(INCR)DECR IN OTHER ASSETS 72,157 74,522
(DECR)INCR IN ACCOUNTS PAYABLE AND
ACCRUED EXPENSES (39,616) (173,798)
(DECR)INCR IN ACCRUED INCOME TAX 3,200 43,381
INCR IN DEFERRED INCOME TAX 0 (108,800)
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NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (734,364) 573,335
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CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT (8,798) (47,759)
SALES (PURCHASES) OF INVESTMENTS - NET 0 (3,196,261)
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NET CASH FROM (USED BY)
INVESTING ACTIVITIES (8,798) (3,244,020)
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CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENT OF CAPITAL LEASE (17,444) (16,164)
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NET (DECREASE) IN CASH (760,606) (2,686,849)
CASH AT BEGINNING OF PERIOD 1,721,839 4,408,135
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CASH AT END OF PERIOD $ 961,233 $ 1,721,286
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD $ 0 $ 0
FOR INTEREST =========== ===========
CASH PAID DURING THE PERIOD FOR INCOME
TAXES $ 0 $ 160,119
=========== ===========
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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 NINE MONTHS ENDED JUNE 30, 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:
06/30/97 9/30/96
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RAW MATERIALS $1,543,393 $1,507,724
WORK IN PROCESS 3,548,481 3,341,022
FINISHED GOODS 2,072,871 2,553,290
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$7,164,745 $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.
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<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
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<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, 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 NINE MONTH PERIOD, CASH AND SHORT TERM INVESTMENTS MAINTAINED AN
AVERAGE BALANCE OF $1,153,042 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 NINE MONTHS OF THE CURRENT FISCAL YEAR, THE COMPANY EXPENDED
$8,798 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, 1997,
SHIPMENTS WERE $1,889,123 UP FROM $540,279 FOR THE QUARTER ENDED MARCH 31, 1997.
SHIPMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1997 WERE $2,891,983, UP FROM
$2,463,367, OR 17.4% FOR THE SAME PERIOD ONE YEAR AGO AND UP $990,856 OR 52.1%
FROM THE NINE MONTHS ENDED JUNE 30, 1996. EXPORT SHIPMENTS FOR THE NINE MONTHS
ENDED JUNE 30, 1997 WERE $1,861,736 OR 64.4% OF TOTAL SALES, UP $247,952 OR
15.4% FROM THE SAME PERIOD ONE YEAR AGO. DOMESTIC SHIPMENTS FOR THE NINE MONTHS
OF THE CURRENT FISCAL YEAR WERE $1,030,247 OR 21.3% AHEAD OF SHIPMENTS FOR THE
SAME PERIOD ONE YEAR AGO OF $849,583. SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES INCREASED $170,688 FROM THE SAME PERIOD ONE YEAR AGO
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<PAGE>
RESULTS OF OPERATIONS: (CONTINUED)
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 HIGHER FOR THE QUARTER DUE MAINLY TO A LARGE SHIPMENT TO A
NORTH AFRICAN CUSTOMER OCCURRING IN APRIL. THE BACK LOG OF JUNE 30, 1997 WAS
$270,388. NEGOTIATIONS CONTINUE FOR PROGRAMS WITH THE U.S. GOVERNMENT AS
WELL AS INTERNATIONAL CUSTOMERS.
FOCUS CONTINUES ON INTERNATIONAL OPPORTUNITIES. SUNAIR HAS BEEN SHORT LISTED
ON A NUMBER OF LARGE PROGRAMS. THE COMPANY IS OPTIMISTIC AS NEGOTIATIONS
CONTINUE ON THESE PROGRAMS AS WELL AS FOR NEW OPPORTUNITIES WHICH CONTINUE TO
SURFACE. EMPHASIS IS PLACED ON FULLY INTEGRATED SYSTEMS CAPABILITIES WITH
COMPUTER BASED RELIABLE, ERROR FREE, AUTOMATIC HIGH SPEED DATA AND FACSIMILE
CAPABILITIES. THIS AREA SHOWS GOOD GROWTH POTENTIAL.
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<PAGE>
PART II OTHER INFORMATION
5. OTHER INFORMATION
ON JULY 30, 1997 THE FOLLOWING PRESS RELEASE WAS ISSUED FOR IMMEDIATE
RELEASE: ROBERT URICHO, JR., CHAIRMAN OF SUNAIR ELECTRONICS, INC. (SNR)
TODAY ANNOUNCED HE HAD RECEIVED AN UNSOLICITED OFFER TO PURCHASE HIS
APPROXIMATELY 50.7% OF THE COMPANY'S OUTSTANDING STOCK AT $4.25 A SHARE.
THIS OFFER HAS BEEN TENTATIVELY ACCEPTED CONTINGENT UPON APPROVAL OF THE
BOARDS OF DIRECTORS AND COUNSELS OF BOTH PARTIES.
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.
DATE August 11, 1997 /s/ ROBERT URICHO, JR.
---------------- ---------------------------------
ROBERT URICHO, JR., PRINCIPAL
EXECUTIVE OFFICER
DATE August 11, 1997 /s/ SYNNOTT B. DURHAM
--------------- ---------------------------------
SYNNOTT B. DURHAM, PRINCIPAL
ACCOUNTING OFFICER
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 961,233
<SECURITIES> 3,167,591
<RECEIVABLES> 1,300,951
<ALLOWANCES> 900
<INVENTORY> 7,164,745
<CURRENT-ASSETS> 9,517,753
<PP&E> 4,009,175
<DEPRECIATION> 3,109,172
<TOTAL-ASSETS> 13,593,949
<CURRENT-LIABILITIES> 246,982
<BONDS> 0
0
0
<COMMON> 393,237
<OTHER-SE> 12,019,031
<TOTAL-LIABILITY-AND-EQUITY> 13,593,949
<SALES> 2,891,983
<TOTAL-REVENUES> 3,069,730
<CGS> 1,950,418
<TOTAL-COSTS> 1,950,418
<OTHER-EXPENSES> 1,079,309
<LOSS-PROVISION> 900
<INTEREST-EXPENSE> 2,848
<INCOME-PRETAX> 40,003
<INCOME-TAX> 3,200
<INCOME-CONTINUING> 36,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,803
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
