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, 1998 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 06/30/98 - 3,776,270 SHARES
<PAGE>
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
INDEX
*****
PAGE NO.
********
PART I. FINANCIAL INFORMATION:
CONSOLIDATED CONDENSED BALANCE SHEETS - -
JUNE 30, 1998 AND SEPTEMBER 30, 1997 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
NINE MONTHS ENDED JUNE 30, 1998 AND 1997. 4
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED JUNE 30, 1998 AND 1997 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED JUNE 30, 1998 AND 1997 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS 7-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED CONDENSED STATEMENTS 10 -11
PART II. OTHER INFORMATION 12
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS 06/30/98 9/30/97
------ -------- -------
CURRENT ASSETS:
---------------
CASH AND CASH EQUIVALENTS $ 1,274,323 $ 1,511,013
ACCOUNTS AND NOTES RECEIVABLE 523,620 430,294
INVENTORIES 6,995,263 7,590,906
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 79,204 55,863
----------- -----------
TOTAL CURRENT ASSETS 8,872,410 9,588,076
----------- -----------
INVESTMENT IN MARKETABLE SECURITIES 3,138,921 3,160,423
-----------------------------------
PROPERTY, PLANT AND EQUIPMENT-NET 987,671 915,277
---------------------------------
TOTAL ASSETS $12,999,002 $13,663,776
============ =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
--------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 228,424 $ 304,980
CURRENT PORTION OF CAPITALIZED LEASE 14,015 24,585
CURRENT PORTION OF INCOME TAXES PAYABLE 1,214 29,614
----------- -----------
TOTAL CURRENT LIABILITIES 243,653 359,179
----------- -----------
LONG-TERM LIABILITIES:
----------------------
LONG-TERM PORTION OF CAPITAL LEASE 0 8,178
LONG-TERM PORTION OF INCOME TAXES PAYABLE 766,700 860,000
----------- -----------
TOTAL LONG-TERM LIABILITIES 766,700 868,178
----------- -----------
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,
3,776,270 and 3,932,370 SHARES ISSUED
and Outstanding at 6/30/98 and
9/30/97 respectively 377,627 393,237
ADDITIONAL PAID-IN-CAPITAL 2,606,899 2,606,899
RETAINED EARNINGS 9,004,123 9,436,283
------------ -----------
11,988,649 12,436,419
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $12,999,002 $13,663,776
======================================== =========== ===========
-3-
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED
-----------------
06/30/98 6/30/97
-------- -------
SALES $2,929,164 $2,891,983
COST OF SALES 2,130,156 1,950,418
---------- ----------
GROSS PROFIT 799,008 941,565
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 958,544 1,079,309
---------- ----------
OPERATING Loss ( 159,536) ( 137,744)
OTHER INCOME:
INTEREST INCOME 188,434 177,642
INTEREST EXPENSE ( 1,491) ( 2,848)
OTHER, NET 5,486 2,953
---------- ----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 32,893 40,003
PROVISION FOR
INCOME TAXES 1,300 3,200
---------- ----------
NET INCOME $ 31,593 $ 36,803
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON 3,869,414 3,932,370
SHARES OUTSTANDING
NET INCOME PER SHARE (BASIC AND DILUTED) $ 0.01 $ 0.01
========== ==========
-4-
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
------------------
06/30/98 06/30/97
-------- --------
SALES $ 559,991 $1,889,123
COST OF SALES 390,504 1,250,120
---------- ----------
GROSS PROFIT 169,487 639,003
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 357,130 310,091
---------- ----------
OPERATING INCOME (LOSS) ( 187,643) 328,912
OTHER INCOME:
INTEREST INCOME 61,835 57,000
INTEREST EXPENSE 340 ( 820)
OTHER, NET 2,054 830
----------- ---------
INCOME BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES ( 123,414) 385,922
PROVISION (BENEFIT) FOR
INCOME TAXES ( 47,200) 130,300
---------- ----------
NET INCOME (LOSS) $( 76,214) $ 255,622
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 3,817,622 3,932,370
NET INCOME PER SHARE (BASIC AND DILUTED) $ (0.02) $ 0.07
========== ==========
-5-
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
-----------------
06/30/98 06/30/97
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 31,593 $ 36,803
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 68,398 75,579
CHANGES IN OPERATING ACTIVITIES:
(INCR) ACCOUNTS RECEIVABLE ( 93,326) (1,119,778)
DECR IN INVENTORY 595,643 237,291
(INCR) DECR IN OTHER ASSETS ( 23,339) 72,157
(DECR) INCR IN ACCOUNTS PAYABLE AND
ACCRUED EXPENSES ( 76,559) ( 39,616)
(DECR) INCR IN ACCRUED INCOME TAX ( 121,700) ( 3,200)
----------- ----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 380,710 ( 734,364)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT ( 140,792) ( 8,798)
SALES OF INVESTMENTS - NET 21,502 0
----------- ----------
NET CASH USED BY
INVESTING ACTIVITIES ( 119,290) ( 8,798)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PURCHASE OF OUTSTANDING SHARES ( 479,362) 0
PRINCIPAL PAYMENT OF CAPITAL LEASE ( 18,748) ( 17,444)
----------- ----------
NET CASH USED BY FINANCING ACTIVITIES: ( 498,110) ( 17,444)
NET (DECREASE) IN CASH (236,690) ( 760,606)
CASH AT BEGINNING OF PERIOD 1,511,013 1,721,839
----------- ----------
CASH AT END OF PERIOD $ 1,274,323 $ 961,233
=========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD $ 1,491 $ 0
FOR INTEREST ============ ===========
CASH PAID DURING THE PERIOD FOR INCOME
TAXES $ 118,000 $ 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 NINE MONTHS ENDED JUNE 30, 1998 ARE NOT NECESSARILY
INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR THE FISCAL
YEAR ENDING SEPTEMBER 30,1998. 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, 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:
06/30/98 9/30/97
---------- ---------
RAW MATERIALS $1,650,488 $1,695,962
WORK IN PROCESS 4,244,790 4,109,569
FINISHED GOODS 1,099,985 1,785,375
---------- ----------
$6,995,263 $7,590,906
========== ==========
(F) INVESTMENTS -
INVESTMENTS 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. THE COMPANY HAS CLASSIFIED THESE
SECURITIES AS "HELD-TO-MATURITY" SECURITIES, IN ACCORDANCE WITH
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
-7-
<PAGE>
(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.
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 OF APPROXIMATELY $320,000 PER YEAR. UPON THE
ASSUMPTION THE COMPANY'S BUSINESS IS PROFITABLE THROUGHOUT THE REMAINING
SEVEN YEARS OF THE TEN YEAR PERIOD, EXCLUDING SUCH INCREMENTAL INCOME,
THE AGGREGATE INCOME TAX PAYABLE AS A CONSEQUENCE OF SUCH DISTRIBUTION
WILL APPROXIMATE A MAXIMUM OF $860,000. INTEREST WILL NO LONGER ACCRUE
ON THE UNPAID PORTION OF THE TAX AMOUNT.
4. PREFERRED STOCK:
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. NONE ARE OUTSTANDING.
5. STOCK OPTIONS:
AS OF DECEMBER 31, 1997 THE COMPANY HAD AUTHORIZED 100,000 SHARES FOR
NON-QUALIFIED STOCK OPTIONS. NONE HAVE BEEN ISSUED.
6. 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 IS NOT
EXPECTED TO 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 ESTABLISHES 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
-8-
<PAGE>
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 ESTABLISHES 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.
7. FINANCIAL INSTRUMENTS:
THE CARRYING AMOUNTS OF CASH AND CASH EQUIVALENTS, ACCOUNTS
RECEIVABLE, LOANS PAYABLE, ACCOUNTS PAYABLE AND ACCRUED INCOME
TAXES PAYABLE APPROXIMATE FAIR VALUE DUE TO THE SHORT MATURITY OF
THE INSTRUMENTS AND RESERVES FOR POTENTIAL LOSSES, AS APPLICABLE.
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY:
----------
DURING THE FIRST NINE MONTHS OF THE CURRENT FISCAL YEAR ENDING JUNE 30,
1998, 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 $1,361,000, COMPARED TO AN
AVERAGE BALANCE OF $1,277,000 FOR THE TWELVE MONTHS ENDED 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
THE REST OF FISCAL 1998. 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 $140,792 FOR CAPITAL ASSETS. 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 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, 1998,
SHIPMENTS WERE $559,991 DOWN FROM $1,221,003 FOR THE QUARTER ENDED MARCH
31, 1998. SHIPMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 WERE
$2,929,164, UP FROM $2,891,983, OR 1.3% FOR THE SAME PERIOD ONE YEAR AGO
AND UP $465,797 OR 18.9% FROM THE NINE MONTHS ENDED JUNE 30, 1996.
EXPORT SHIPMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 WERE $807,626
OR 27.6% OF TOTAL SALES, DOWN $1,054,110 OR 56.6% FROM THE SAME PERIOD
ONE YEAR AGO. DOMESTIC SHIPMENTS FOR THE FIRST NINE MONTHS OF THE
CURRENT FISCAL YEAR WERE $2,121,538 OR 105.9% AHEAD OF SHIPMENTS FOR THE
SAME PERIOD ONE YEAR AGO OF $1,030,247.
-10-
<PAGE>
RESULTS OF OPERATIONS: (CONTINUED)
----------------------
SHIPMENTS FOR THE FIRST NINE MONTHS WERE SLIGHTLY HIGHER THAN LAST YEAR
AT THIS TIME DUE TO ORDERS RECEIVED IN THE FOURTH QUARTER OF FISCAL 1997
WHICH RESULTED IN A BACKLOG AT SEPTEMBER 30, 1997 OF $1,796,000. THE
BACKLOG FOR THE QUARTER OF FISCAL 1998 ENDED JUNE 30, 1998 WAS $668,000.
NEGOTIATIONS CONTINUE FOR CONTRACTS WITH BOTH DOMESTIC AND INTERNATIONAL
CUSTOMERS. THE COMPANY CONTINUES TO BE OPTIMISTIC ABOUT FUTURE
REQUIREMENTS EVEN THOUGH THE PROCUREMENT CYCLE CONTINUES TO BE EXTREMELY
LONG DUE TO THE COMPLEXITY OF THE DESIGN OF THE SYSTEM REQUIREMENTS
EXPERIENCED IN THE MARKET TODAY. NEW MARKET OPPORTUNITIES ARE BEING
PURSUED IN CENTRAL AND SOUTH AMERICA AND OTHER GEOGRAPHIC AREAS NOT
COVERED PREVIOUSLY AND THE COMPANY HAS REALIZED SOME BUSINESS FROM THESE
AREAS AND CONTINUES TO BE OPTIMISTIC FOR INCREASED BUSINESS IN THE
FUTURE.
AS DISCUSSED IN OUR REPORT ON FORM 10K FOR FISCAL YEAR ENDED SEPTEMBER
30, 1997, GMDSS (GLOBAL MARINE DISTRESS AND SAFETY SYSTEM) CAPABILITY
HAS BEEN ADDED TO OUR PRODUCT LINE TO ADDRESS FUTURE REQUIREMENTS
MANDATED FOR THE YEAR 1999 AND BEYOND. THIS PRODUCT WAS DEVELOPED BY THE
COMPANY AT A COST OF APPROXIMATELY $60,000.
GENERAL AND ADMINISTRATIVE EXPENSES DECREASED $116,765 FROM THE SAME
PERIOD ONE YEAR AGO DUE TO DECREASED PERSONNEL AND DECREASED R&D
EXPENSES. THE DIRECT LABOR FORCE CONTINUES AT A REDUCED LEVEL DUE TO
SUFFICIENT INVENTORY LEVELS IN FINISHED GOODS TO MEET CURRENT
DELIVERIES.
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.
THIS QUARTER THE COMPANY BEGAN THE NECESSARY STEPS TO BECOME ISO- 9000
REGISTERED AND CURRENTLY IS PROCEEDING WITH THE NECESSARY DOCUMENTATION
AND AUDIT PROCEDURES TO ACCOMPLISH REGISTRATION BY LATE 1998 OR EARLY
1999.
-11-
<PAGE>
PART II OTHER INFORMATION
5. OTHER INFORMATION
NONE
6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
-12-
<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.
AUG 11, 1998 /S/ ROBERT URICHO, JR.
DATE____________________________________ -------------------------------
ROBERT URICHO, JR., PRINCIPAL
EXECUTIVE OFFICER
AUG 11, 1998 /S/ SYNNOTT B. DURHAM
DATE____________________________________ -------------------------------
SYNNOTT B. DURHAM, PRINCIPAL
ACCOUNTING OFFICER
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000095366
<NAME> SUNAIR ELECTRONICS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,274,323
<SECURITIES> 3,138,921
<RECEIVABLES> 523,620
<ALLOWANCES> 900
<INVENTORY> 6,995,263
<CURRENT-ASSETS> 8,872,410
<PP&E> 4,190,401
<DEPRECIATION> 3,202,730
<TOTAL-ASSETS> 12,999,002
<CURRENT-LIABILITIES> 243,653
<BONDS> 0
<COMMON> 377627
0
0
<OTHER-SE> 11,988,649
<TOTAL-LIABILITY-AND-EQUITY> 12,999,002
<SALES> 2,929,164
<TOTAL-REVENUES> 3,121,593
<CGS> 2,130,156
<TOTAL-COSTS> 2,130,156
<OTHER-EXPENSES> 958,544
<LOSS-PROVISION> 900
<INTEREST-EXPENSE> 1,491
<INCOME-PRETAX> 32,893
<INCOME-TAX> 1,300
<INCOME-CONTINUING> 31,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,593
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
