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, 1996 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 12/31/96 - 3,932,370 SHARES
<PAGE>
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
INDEX
*****
PAGE NO.
**********
PART I. FINANCIAL INFORMATION:
CONSOLIDATED CONDENSED BALANCE SHEETS - -
DECEMBER 31, 1996 AND SEPTEMBER 30, 1996 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995 4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995 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)
<S> <C> <C>
ASSETS 12/31/96 9/30/96
------ ----------- -----------
CURRENT ASSETS:
---------------
CASH AND CASH EQUIVALENTS $ 1,197,345 $ 1,721,839
ACCOUNTS AND NOTES RECEIVABLE 422,055 181,173
INVENTORIES 7,638,670 7,402,036
PREPAID EXPENSES AND OTHER CURRENT ASSETS 139,142 150,080
----------- -----------
TOTAL CURRENT ASSETS 9,397,212 9,455,128
----------- -----------
INVESTMENT IN MARKETABLE SECURITIES 3,181,926 3,189,094
-----------------------------------
PROPERTY, PLANT AND EQUIPMENT-NET 942,821 966,784
---------------------------------
OTHER ASSETS 21,941 0
------------ ----------- -----------
TOTAL ASSETS $13,543,900 $13,611,006
============ =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
--------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 304,218 $ 247,289
CURRENT PORTION OF CAPITALIZED LEASE 23,173 22,720
----------- -----------
TOTAL CURRENT LIABILITIES 327,391 270,009
----------- -----------
LONG-TERM LIABILITIES:
----------------------
LONG-TERM PORTION OF CAPITAL LEASE 27,370 33,527
LONG-TERM PORTION OF INCOME TAXES PAYABLE 920,000 932,000
----------- -----------
TOTAL LONG-TERM LIABILITIES 947,370 965,527
----------- -----------
SHAREHOLDERS' EQUITY 12,269,139 12,375,470
-------------------- ----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $13,543,900 $13,611,006
======================================== =========== ===========
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
(UNAUDITED)
12/31/96 12/31/95
<S> <C> <C>
---------- ----------
SALES $ 462,581 $ 890,711
COST OF SALES 330,733 559,493
----------- ----------
GROSS PROFIT 131,848 331,218
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 366,875 242,755
----------- ----------
OPERATING INCOME ( 235,027) 88,463
OTHER INCOME:
INTEREST INCOME 61,667 56,015
INTEREST EXPENSE ( 1,095) ( 19,800)
OTHER, NET 1,529 417
---------- ----------
INCOME BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES ( 172,926) 125,095
PROVISION (BENEFIT) FOR
INCOME TAXES ( 66,600) 42,000
---------- ----------
NET INCOME $(106,326) $ 83,095
========== ==========
AVERAGE SHARES OUTSTANDING 3,932,370 3,932,370
EARNINGS PER SHARE $ 0.03 $ 0.02
========== ==========
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
12/31/96 12/31/95
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (106,326) $ 83,095
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 26,302 25,021
CHANGES IN OPERATING ACTIVITIES:
(INCR) IN ACCOUNTS RECEIVABLE ( 240,882) ( 176,051)
(INCR) DECR IN INVENTORY ( 236,634) 106,764
(INCR) DECR IN OTHER ASSETS ( 3,835) 97,819
(DECR) INCR IN ACCOUNTS PAYABLE AND
ACCRUED EXPENSES 106,524 ( 123,341)
(DECR) INCR IN ACCRUED INCOME TAX ( 61,600) 15,000
INCR IN DEFERRED INCOME TAX 0 27,000
----------- ----------
NET CASH USED BY OPERATING ACTIVITIES ( 516,451) 55,307
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT ( 2,339) ( 2,911)
SALES (PURCHASES) OF INVESTMENTS - NET 0 (3,210,597)
----------- ----------
NET CASH FROM INVESTING ACTIVITIES ( 2,339) (3,213,508)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENT OF CAPITAL LEASE (5,704) ( 5,286)
----------- ----------
NET INCREASE (DECREASE) IN CASH (524,494) (3,163,487)
CASH AT BEGINNING OF PERIOD 1,721,839 4,408,135
----------- ----------
CASH AT END OF PERIOD $ 1,197,345 $1,244,648
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE YEAR FOR INTEREST $ 0 $ 0
============ ============
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, 1996, ARE NOT NECESSARILY INDICATIVE OF
THE RESULTS THAT MAY BE EXPECTED FOR THE FISCAL YEAR ENDING
SEPTEMBER 30, 1997.
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:
12/31/96 9/30/96
----------- -----------
RAW MATERIALS $ 1,575,289 $ 1,507,724
WORK IN PROCESS 3,436,553 3,341,022
FINISHED GOODS 2,626,828 2,553,290
----------- -----------
$ 7,638,670 $ 7,402,036
=========== ===========
- 6 -
<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 $98,500 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:
AS OF DECEMBER 31, 1996, THE COMPANY HAD GRANTED NON-QUALIFIED
STOCK OPTIONS ON 100,000 SHARES OF COMMON STOCK.
- 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, 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 THREE MONTH PERIOD, CASH AND
SHORT TERM INVESTMENTS MAINTAINED AN AVERAGE BALANCE OF $ 1,402,000,
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 THREE 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 FIRST QUARTER OF THE CURRENT FISCAL YEAR ENDED
DECEMBER 31, 1996, SHIPMENTS WERE $ 462,581, DOWN FROM SHIPMENTS OF $
890,711 OR 48% FOR THE SAME QUARTER ONE YEAR AGO AND DOWN $ 110,743 OR
19% FOR THE FIRST QUARTER ENDED DECEMBER 31, 1994. EXPORT SHIPMENTS FOR
THE THREE MONTHS ENDED DECEMBER 31, 1996 WERE $ 196,720 OR 43% OF TOTAL
SALES, DOWN $ 275,398 OR 58% FROM THE SAME PERIOD ONE YEAR AGO. DOMESTIC
SHIPMENTS FOR THE FIRST THREE MONTHS OF THE CURRENT FISCAL YEAR WERE $
265,861, COMPARABLE TO SHIPMENTS FOR THE SAME PERIOD ONE YEAR AGO OF $
418,593, DOWN $ 152,732 OR 36%. MANAGEMENT CONTINUES TO MONITOR SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES WHICH INCREASED $ 27,505 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)
----------------------
SHIPMENTS WERE LOW FOR THE FIRST QUARTER DUE TO THE DELAY IN
SHIPPING THE FOLLOW ON AMENDMENT RECEIVED FROM A FOREIGN NAVY UNTIL THE
THIRD QUARTER OF FISCAL 1997, AS WELL AS CONTINUAL DELAYS IN THE RELEASE
OF CONTRACTS FROM US GOVERNMENT AND OTHER INTERNATIONAL AGENCIES. TRAVEL
TO THE FAR EAST IS PLANNED FOR THE SECOND QUARTER AND A NUMBER OF NEW
PROGRAMS HAVE BEEN UNCOVERED. RECEPTION TO THE PATHFINDER SYSTEM
CONTINUES TO BE ENTHUSIASTIC AND SEVERAL DEMONSTRATIONS ARE IN THE
PLANNING STAGES. THE COMPANY CONTINUES TO BE OPTIMISTIC ABOUT FUTURE
REQUIREMENTS EVEN THOUGH THE PROCUREMENT CYCLE CONTINUES TO BE EXTREMELY
LONG.
- 9 -
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
ITEM 27. FINANCIAL DATA SCHEDULE
- 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 11, 1997 /S/ ROBERT URICHO, JR.
DATE _________________ _____________________________
ROBERT URICHO, JR., PRINCIPAL
EXECUTIVE OFFICER
FEBRUARY 11, 1997 /S/ SYNNOTT B. DURHAM
DATE _________________ ____________________________
SYNNOTT B. DURHAM, PRINCIPAL
ACCOUNTING OFFICER
- 11 -
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
NUMBER
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000095366
<NAME> SUNAIR ELECTRONICS, INC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,197,345
<SECURITIES> 3,181,926
<RECEIVABLES> 422,055
<ALLOWANCES> 300
<INVENTORY> 7,638,670
<CURRENT-ASSETS> 9,397,212
<PP&E> 4,002,716
<DEPRECIATION> 3,059,895
<TOTAL-ASSETS> 13,543,900
<CURRENT-LIABILITIES> 327,391
<BONDS> 0
0
0
<COMMON> 393,237
<OTHER-SE> 11,875,902
<TOTAL-LIABILITY-AND-EQUITY> 13,543,900
<SALES> 462,591
<TOTAL-REVENUES> 525,777
<CGS> 330,733
<TOTAL-COSTS> 330,733
<OTHER-EXPENSES> 366,875
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 1,095
<INCOME-PRETAX> (172,926)
<INCOME-TAX> (66,600)
<INCOME-CONTINUING> (106,326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (106,326)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
