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, 1998
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__
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant approximated $2,848,842 as of December 1, 1998 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 December 1,
1998 - 3,743,270 shares.
Documents Incorporated by Reference:
Portions of the annual shareholders' report for the years ended September 30,
1998 and September 30, 1997 and related proxy statements 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.
1
<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 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:
1998 1997
---- ----
$ 245,844 $1,796,474
All orders at September 30, 1998 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 1998. During the fiscal years ended
September 30, 1996, 1997 and 1998, Sunair expended $115,000, $278,000, and
$142,000 respectively, on product development and engineering.
e. The Company had 44 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, 1998, 1997 and 1996, 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.
1998
----
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
------------ ------------ ------------ -----------
High 3 1/8 3 3/8 3 1/8 3
Low 2 9/16 2 15/16 2 13/16 1 7/8
1997
----
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
------------ ------------ ------------ -----------
High 2 5/8 2 1/8 2 3 5/8
Low 1 3/4 1 5/16 1 11/16 1 3/16
(b) As of December 1, 1998, it is estimated that there were approximately 700
shareholders of record.
4
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Sales $ 3,746,991 $ 3,406,017 $ 2,930,620 $ 3,333,268 $ 2,494,777
Cost of sales 2,750,976 2,133,927 1,967,720 2,113,354 1,388,600
---------------- --------------- ---------------- -------------- ---------------
Gross profit 996,015 1,272,090 962,900 1,219,914 1,106,177
Selling, general and
administrative expenses 1,195,963 1,409,932 1,292,323 1,168,238 1,340,877
---------------- --------------- ---------------- -------------- ---------------
Income (loss) from operations (199,948) (137,842) (329,423) 51,676 (234,700)
---------------- --------------- ---------------- -------------- ---------------
Other income (deductions)
Interest income 246,261 241,472 238,127 232,523 321,609
Interest expense (1,717) (3,555) (20,719) (79,718) (43,913)
Other income (expenses) 7,439 4,874 5,013 10,788 (39,760)
---------------- --------------- ---------------- -------------- ---------------
251,983 242,791 222,421 163,593 237,936
---------------- --------------- ---------------- -------------- ---------------
Income (loss) before (provision)
benefit for income taxes 52,035 104,949 (107,002) 215,269 3,236
(Provision) benefit for income
taxes (14,000) (44,000) (922,217) (47,800) 4,000
---------------- --------------- ---------------- -------------- ---------------
Net income (loss) $ 38,035 $ 60,949 $ (1,029,219) $ 167,469 $ 7,236
================ =============== ================ ============== ===============
Net income (loss) per common
share (basic and diluted) $0.01 $0.02 $(0.26) $0.04 $0.00
================ =============== ================ ============== ===============
Average shares outstanding 3,841,936 3,932,370 3,932,370 3,932,370 3,932,370
Cash dividend per share $0.00 $0.00 $0.00 $0.00 $0.00
Working capital year end $ 8,513,303 $ 9,228,897 $ 9,185,119 $ 12,559,292 $ 8,396,050
Total Assets $ 12,943,195 $13,663,776 $ 13,611,006 $ 13,981,338 $ 13,783,537
Stockholders' equity per share $3.18 $3.16 $3.15 $3.41 $3.37
</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, 1998, 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
$1,438,000 as opposed to an average balance of $1,277,000 for the twelve months
ending September 30, 1997, or an average balance of $1,626,000 for the twelve
months ended September 30, 1996. 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
1999. The current ratio of the Company as of September 30, 1998 was 32.2
compared to 26.7 as of September 30, 1997, or 35.0 as of September 30, 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 twelve months of fiscal 1998, $207,701 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. Liabilities consist of current accounts payable, accrued
expenses related to the current accounting period, the current portion of the
capital lease, and the current and long term portion of income taxes payable.
RESULTS OF OPERATIONS:
- ----------------------
During 1998 shipments of $3,747,000 were up 10% or $341,000 from fiscal 1997 and
up 28% or $816,000 from fiscal 1996. Domestic shipments of $2,270,000 for fiscal
1998 were up 52% or $776,000 from fiscal 1997 and up 127% or 1,269,000 from
fiscal 1996. Export shipments for fiscal 1998 were $1,438,000 down 25% or
$474,000 from fiscal 1997 and down 25% or $492,000 from fiscal 1996. The above
comparative sales reflect a continuing sluggish market for export activity.
Selling, general and administrative expenses decreased $206,000 or 15% from
fiscal 1997 and were 7% lower than fiscal 1996 expenses. Interest income
remained lower due to lower interest rates. The backlog of September 30, 1998
was $245,844 compared to the September 30, 1997 backlog of $1,796,474.
Due to declining requirements for "stand alone" radio boxes, a development
program requiring a sizeable investment over the past several years was
undertaken for the development of software and systems capabilities. As a
result, we are now experiencing more product inquiries of greater potential than
at any time in the past five years. This development program was instrumental in
receiving two contracts valued at over $3.8 million for delivery during the next
eighteen months. We are also currently negotiating a large contract for another
similar communication system.
The scope of this new market requires extensive planning and coordination on the
buyer's part to define his requirements with more direct marketing and
engineering involvement by the seller.
Even though we have identified a number of opportunities in 23 countries, export
shipments as well as order input continues to be sluggish. This is partly due to
currency and other economic problems experienced by certain countries. Programs
for these countries are for the most part, still active opportunities.
6
<PAGE>
In addition to the software and systems capabilities developed through R&D
efforts, additional progress has been achieved in the development of new
products. GMDSS (Global Marine Distress and Safety System) capability was
developed to meet future requirements mandated for the year 1999 and beyond.
Progress continues on the development of a new generation series of HF digital
radio communication systems. This system is designed to be fully compatible with
the Pathfinder digital message switch data terminal and the Sunair Windows based
remote control systems. The 2000 series will allow customers to send both
facsimile and E-mail messages 100% error free over communication paths.
Sunair International Sales Corporation(SISC) a wholly owned subsidiary, was
treated as an Interest Charge-Domestic International Sales Corporation(IC-DISC)
in prior years. 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 next six years, excluding such incremental income, the aggregate income tax
payable as a consequence of such distribution will approximate a maximum of
$737,000 or $120,000 per year. No interest is payable on this unpaid portion.
The company has investigated the pending year 2000 problem and determined the
issue will not have a material impact on its business operations or its
financial condition. The company does, however, plan to replace older software
with state-of-the-art software in the year 1999 for more efficient operations
and inventory control. The cost for this project is estimated at approximately
$75,000.
7
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
---------------------------------------
1998 1997
----------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,463,726 $ 1,511,013
Accounts receivable 474,065 430,294
Inventories 6,807,635 7,590,906
Prepaid expenses and other current assets 40,920 55,863
---------------- --------------
8,786,346 9,588,076
INVESTMENTS 3,131,753 3,160,423
PROPERTY, PLANT, AND EQUIPMENT
Land 224,299 224,299
Buildings and improvements 1,699,098 1,692,383
Machinery and equipment 2,333,913 2,132,927
---------------- --------------
4,257,310 4,049,609
Less: Accumulated depreciation 3,232,214 3,134,332
---------------- --------------
1,025,096 915,277
---------------- --------------
$12,943,195 $13,663,776
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,
---------------------------------------
CURRENT LIABILITIES 1998 1997
----------------- ---------------
Accounts payable and accrued expenses $ 231,934 $ 304,980
Current portion of capitalized lease 7,495 24,585
Current portion of income taxes payable 33,614 29,614
---------------- ---------------
273,043 359,179
LONG-TERM LIABILITIES
Long-term portion of capitalized lease 0 8,178
Long-term portion of income taxes payable 737,000 860,000
---------------- ---------------
737,000 868,178
---------------- ---------------
1,010,043 1,227,357
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, 3,756,270 and 3,932,370 shares issued and outstanding
at September 30, 1998 and September 30, 1997 respectively 375,627 393,237
Additional paid-in-capital 2,606,899 2,606,899
Retained earnings 8,950,626 9,436,283
---------------- ---------------
11,933,152 12,436,419
---------------- ---------------
$12,943,195 $13,663,776
================ ===============
</TABLE>
Notes to Consolidated Financial Statements are an integral part of this
statement.
8
<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, 1998 and 1997 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 1998. 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, 1998 and 1997 and the results of its
operations and cash flows for each of the three years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
November 5, 1998
Puritz and Weintraub, LLP
Certified Public Accountants
<TABLE>
<CAPTION>
CONSOLIDATED INCOME STATEMENTS Year Ended September 30,
----------------------------------------------------------
1998 1997 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
Sales $ 3,746,991 $ 3,406,017 $ 2,930,620
Cost of sales 2,750,976 2,133,927 1,967,720
-------------- --------------- --------------
Gross profit 996,015 1,272,090 962,900
Selling, general and administrative expenses 1,195,963 1,409,932 1,292,323
-------------- --------------- --------------
Income (loss) from operations (199,948) (137,842) (329,423)
-------------- --------------- --------------
Other income (expenses):
Interest income 246,261 241,472 238,127
Interest expense (1,717) (3,555) (20,719)
Other income (expenses) 7,439 4,874 5,013
-------------- --------------- --------------
251,983 242,791 222,421
-------------- --------------- --------------
Income (loss) before provision
for income taxes 52,035 104,949 (107,002)
(Provision) for income taxes (14,000) (44,000) (922,217)
-------------- --------------- --------------
Net income (loss) $ 38,035 $ 60,949 $ (1,029,219)
============== =============== ==============
Net income (loss) per common share
(basic and diluted) $ 0.01 $ 0.02 $ (0.26)
============== =============== ==============
Average shares outstanding 3,841,936 3,932,370 3,932,370
============== =============== ==============
</TABLE>
Notes to Consolidated Financial Statements are an integral part of this
statement.
9
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 38,035 $ 60,949 $(1,029,219)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 126,552 129,410 109,091
(Increase) decrease in accounts receivable (43,771) (249,121) 548,605
(Increase) decrease in inventory 783,271 (188,870) 274,316
Decrease in prepaid and other assets 14,943 94,217 5,784
Increase (decrease) in accounts payable and
accrued expenses (73,046) 57,691 (142,552)
Increase (decrease) in income taxes payable (119,000) (42,386) 932,000
(Decrease) in deferred income taxes 0 0 (108,800)
--------------- --------------- ---------------
Net cash provided by (used in) operating activities 726,984 (138,110) 589,225
--------------- --------------- ---------------
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (207,701) (49,232) (64,666)
Purchase of investments, net 0 0 (3,189,094)
--------------- --------------- ---------------
Net cash (used in) investing activities (207,701) (49,232) (3,253,760)
--------------- --------------- ---------------
FINANCING ACTIVITIES
Principal payments on capital lease (25,268) (23,484) (21,761)
Purchase and retirement of common stock (541,302) 0 0
--------------- --------------- ---------------
Net cash (used in) financing activities (566,570) (23,484) (21,761)
--------------- --------------- ---------------
Net (decrease) in cash and cash equivalents (47,287) (210,826) (2,686,296)
Cash and cash equivalents at beginning of the year 1,511,013 1,721,839 4,408,135
--------------- --------------- ---------------
Cash and cash equivalents at end of the year $ 1,463,726 $ 1,511,013 $ 1,721,839
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for interest $ 1,717 $ 3,555 $ 5,225
============== ============== ==============
Cash paid during the year for income taxes $ 103,000 $ 0 $ 169,119
============== ============== ==============
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained Treasury Stock
--------------------------- -------------------------------
Shares Amount Capital Earnings Shares Amount
------------ ------------- ------------------------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balances at 9/30/95 4,800,740 $ 480,074 $2,606,899 $ 15,274,327 868,370 $ (4,956,611)
Retirement of
treasury stock (868,370) (86,837) 0 (4,869,774) (868,370) 4,956,611
9/30/96 net (loss) 0 0 0 (1,029,219) 0 0
----------- ------------ -------------- -------------- ------------ ---------------
Balances at 9/30/96 3,932,370 393,237 2,606,899 9,375,334 0 0
9/30/97 net income 0 0 0 60,949 0 0
----------- ------------ -------------- -------------- ------------ ---------------
Balances at 9/30/97 3,932,370 $ 393,237 $2,606,899 $ 9,436,283 0 $
0
Purchase and
retirement of
common stock (176,100) (17,610) 0 (523,692) 0 0
9/30/98 net income 0 0 0 38,035 0 0
----------- ------------ -------------- -------------- ------------ ---------------
Balances at 9/30/98 3,756,270 $ 375,627 $2,606,899 $ 8,950,626 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. (the "Company") and its wholly-owned
subsidiary, Sunair International Sales Corporation. 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, 1998 and 1997. 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.
The following schedule reflects values at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Name of issuer
and title of issue Principal Cost Market Carrying
------------------ --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
1998
----
PEFCO 7.95% secured note series UU
due November 1, 2006 $2,900,000 $3,215,375 $3,368,524 $3,131,753
============== ============== ============== ==============
1997
----
PEFCO 7.95% secured note series UU
due November 1, 2006 $2,900,000 $3,215,375 $3,149,226 $3,160,423
============== ============== ============== ==============
</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
The cost of maintenance and repairs is charged to income as incurred;
renewals and betterments are capitalized. When properties are retired or
otherwise disposed of, the cost of such properties and the related
accumulated depreciation are removed from the accounts. Any profit or loss
is credited or charged to income.
Research and development
Expenditures for research and development are charged to income as
incurred and amounted to approximately $142,000 in 1998, $278,000 in 1997,
and $115,000 in 1996.
Income (loss) per share
Basic and diluted income (loss) per share is based upon the weighted
average number of shares outstanding during each year. Shares subject to
options were not included in the computation since the present effects
thereof are not materially dilutive.
Changes in accounting policies
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 simplifies the standards for
computing earnings per share and is effective for financial statements for
both interim and annual periods ending after December 15, 1997. Earlier
application is not permitted. The adoption of SFAS 128 did not have a
material impact on the company's previously reported earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 established standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. Sunair is in the process of determining its preferred format.
The adoption of SFAS No. 130 will have no impact on Sunair's
consolidated results of operations, financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
established standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It
also established standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 is effective
for financial statements for fiscal years beginning after December 15,
1997. Financial statement disclosures for prior periods are required to be
restated. Sunair is in the process of evaluating the disclosure
requirements. The adoption of SFAS No. 131 will have no impact on Sunair's
consolidated results of operations, financial position or cash flows.
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
1998 presentations.
12
<PAGE>
2. Income taxes
The components of the Company's income tax provision are as follows:
Current: 1998 1997 1996
-------------- -------------- --------------
Federal $ 12,500 $ 37,000 $ 841,917
State 1,500 7,000 80,300
------------- ------------- -------------
$ 14,000 $ 44,000 $ 922,217
============= ============= =============
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 next six years, excluding such incremental
income, the aggregate income tax payable as a consequence of such
distribution will approximate a maximum of $737,000 or $120,000 per year.
No interest is payable on this unpaid portion.
At September 30, 1998 and 1997, the Company estimated an underpayment of
current year taxes of approximately $33,000 and $30,000 respectively.
The total provision for 1997 is more than amounts computed by applying the
statutory rates to income before income taxes, and the total provisions
for 1998 and 1996 are less than amounts computed by applying the statutory
rates to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
Income taxes (benefit) at the statutory rates $ 17,692 $ 35,683 $ (36,381)
State income taxes, net of federal tax benefit 1,000 2,000 54,000
Tax attributable to distributed
earnings of SISC 0 0 984,717
Book/tax difference attributable
to depreciation 15,000 15,000 (40,000)
Tax free income (15,000) (13,600) (10,200)
Capital losses 0 0 (22,400)
Other (4,692) 4,917 (7,519)
------------- ------------ ------------
$ 14,000 $ 44,000 $ 922,217
============= ============ ============
3. Inventories
Inventories consist of the following:
September 30,
---------------------------------------------------
1998 1997 1996
----------------- --------------- ---------------
Materials $1,534,908 $1,695,962 $1,507,724
Work in Process 3,879,230 4,109,569 3,341,022
Finished goods 1,393,497 1,785,375 2,553,290
---------------- -------------- --------------
$6,807,635 $7,590,906 $7,402,036
================ ============== ==============
</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:
<TABLE>
<CAPTION>
Year ending Amount
----------- -----------
<S> <C>
1999 $8,065
----------
Total minimum lease payments $8,065
Less amount representing interest 570
----------
Obligations under capital leases 7,495
Less current portion 7,495
----------
$ 0
==========
</TABLE>
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 such shares have been issued.
The Company has 6,000,000 authorized shares of common stock, $.10 par
value, that may be issued. During the year ended September 30, 1998, the
Company purchased 176,100 shares of its common stock leaving 3,756,270
shares issued and outstanding.
The average price paid for the above shares was $3.07 per share.
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. During fiscal year ended
September 30, 1997, these options were cancelled.
During fiscal year ended Spetember 30, 1998, the shareholders approved the
issuance of 100,000 non-qualified stock options. None have been issued.
The following is a summary of outstanding stock options:
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- -------------------------
Number of Option Number of Option Number of Option
Shares Price Shares Price Shares Price
------------- -------- ------------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Beginning of year 0 $ 100,000 $ 3.00 20,100 $1.375
0
Cancelled (0) 0 (100,000) 3.00 (20,100) 1.375
Granted 0 0 0 0 100,000 3.000
----------- ---------- ----------- ---------- ----------- ---------
End of Year 0 $ 0 0 0 100,000 $3.000
=========== ========== =========== ========== =========== =========
</TABLE>
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 1998, the Company did not contribute to the
plan.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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: 1998 1997 1996
-------------- --------------- --------------
<S> <C> <C> <C>
Europe $ 404,897 $ 142,432 $ 99,528
Asia 544,671 318,855 951,589
South America 68,783 65,865 33,803
Africa 388,155 990,762 618,167
North America 2,331,247 1,521,873 1,009,967
Australia 9,238 366,230 217,566
------------- -------------- -------------
$3,746,991 $3,406,017 $2,930,620
============= ============== =============
Sales to U.S. governmental agencies $1,775,132 $ 800,740 $ 553,040
============= ============== =============
Direct sales to foreign governments $ 281,410 $1,011,431 $ 609,167
============= ============== =============
</TABLE>
8. Quarterly information (unaudited)
Summarized quarterly results of operations and common stock market values
for each quarter of fiscal year ended September 30, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------
1 2 3 4
--------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Sales $1,148,170 $1,221,003 $ 559,991 $ 817,827
Gross Profit 320,874 308,647 169,487 197,007
Net income 66,437 41,370 ( 76,214) 6,442
Net income per common share $ 0.02 $ 0.01 $( 0.02) $ 0.00
-------------- ------------ -------------- -------------
Dividends per share None None None None
============== ============ ============== =============
Market price per share
High 3 1/8 3 3/8 3 1/8 3
Low 2 9/16 2 15/16 2 13/16 1 7/8
1997
-------------------------------------------------------------------
1 2 3 4
--------------- ------------- --------------- --------------
Sales $ 462,581 $ 540,279 $1,889,123 $ 514,034
Gross Profit 131,848 170,714 639,003 330,525
Net income (106,326) (112,493) 255,622 24,146
Net income per common share $ (0.03) $ (0.03) $ 0.07 $ 0.01
-------------- ------------ -------------- -------------
Dividends per share None None None None
============== ============ ============== =============
Market price per share
High 2 5/8 2 1/8 2 3 5/8
Low 1 3/4 1 5/16 1 11/16 1 3/16
</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
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Family
Name Age Position Held Relationship
- ---- --- ------------- ------------
<S> <C> <C>
Robert Uricho, Jr. 83 Chairman of the Husband of
Board, President, Shirley Uricho
Chief Executive
Officer and
Director Since
1956
Shirley Uricho 65 Assistant Wife of
Secretary Robert Uricho, Jr.
Since 1959
Secretary
Since 1992
James E. Laurent 62 Vice President/ None
Marketing
Since 1988
Synnott B. Durham 57 Cost Manager None
Since 1979
Treasurer, Chief
Financial Officer
Since 1994
Earl M. Anderson, Jr. 73 Director None
Since 1969
George F. Arata, Jr. 69 Director None
Since 1995
</TABLE>
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, 1998 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>
Robert Chairman of the $175,000 --
Uricho, Jr. Board, President
and Chief Executive
Officer
All Officers
and Directors
(6 Persons
including the 1
named above) $378,858 --
</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.
Based solely upon a review of information furnished to the registrant during the
most recent fiscal year, including written representations, no director, officer
or beneficial owner of more than 10% of the company's common stock failed to
file on a timely basis reports required by Section 16(A) of the Exchange Act
during fiscal year 1998.
(A) Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
Title Name and Address Amount and Nature Percent
of Class of Beneficial Owner of Beneficial Ownership of Class
-------- -------------------- ----------------------- --------
<S> <C> <C> <C>
Common Robert Uricho, Jr. *2,272,900 60.72%
Board Chairman & CEO
3101 S.W. 3rd Avenue
Fort Lauderdale, FL
(B) Security Ownership of Management
Title Name and Address Amount and Nature (1) Percent
of Class of Beneficial Owner of Beneficial Ownership of Class
-------- ------------------- ----------------------- --------
Common Robert Uricho, Jr. 2,272,900 60.72%
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 60.88%
As a group (6)
</TABLE>
* 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 3,743,270 shares outstanding at December 1, 1998.
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>
(a) 1. Financial Statements filed as a part of the Form 10-K
Consolidated Balance Sheets as of
September 30,1998 and 1997 Page 8
Statements of Consolidated Income for each of the
three years in the period ended September 30, 1998 Page 9
Statements of stockholders' equity for each of the
three years in the period ended September 30, 1998 Page 10
Consolidated Statements of Cash Flows for each
of the three years in the period ended September
30, 1998 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 9
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 17, 1998
-----------------
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
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-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 1,463,728
<SECURITIES> 3,131,753
<RECEIVABLES> 474,065
<ALLOWANCES> 0
<INVENTORY> 6,807,635
<CURRENT-ASSETS> 8,786,346
<PP&E> 4,257,310
<DEPRECIATION> 3,232,214
<TOTAL-ASSETS> 12,943,195
<CURRENT-LIABILITIES> 273,043
<BONDS> 0
375,627
0
<COMMON> 0
<OTHER-SE> 11,557,525
<TOTAL-LIABILITY-AND-EQUITY> 12,943,195
<SALES> 3,746,991
<TOTAL-REVENUES> 3,993,252
<CGS> 2,750,976
<TOTAL-COSTS> 2,750,976
<OTHER-EXPENSES> 1,195,963
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,717
<INCOME-PRETAX> 52,035
<INCOME-TAX> 14,000
<INCOME-CONTINUING> 38,035
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,035
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
