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, 1999 COMMISSION FILE NUMBER I-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 OUT STANDING 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 06/30/99 - 3,718,070 SHARES
1
<PAGE>
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
INDEX
-----
PAGE NO.
--------
PART I. FINANCIAL INFORMATION:
CONSOLIDATED CONDENSED BALANCE SHEETS - -
JUNE 30, 1999 AND SEPTEMBER 30, 1998 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
NINE MONTHS ENDED JUNE 30, 1999 AND 1998. 4
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED JUNE 30, 1999 AND 1998 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED JUNE 30, 1999 AND 1998 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
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
----------- ---------
ASSETS 06/30/99 9/30/98
- ------ -------- -------
<S> <C> <C>
CURRENT ASSETS:
- ---------------
CASH AND CASH EQUIVALENTS $ 1,675,419 $ 1,463,726
ACCOUNTS AND NOTES RECEIVABLE 484,342 474,065
INVENTORIES 7,114,251 6,807,635
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 70,013 40,920
----------- -----------
TOTAL CURRENT ASSETS 9,344,025 8,786,346
----------- -----------
INVESTMENT IN MARKETABLE SECURITIES 3,110,248 3,131,753
PROPERTY, PLANT AND EQUIPMENT-NET 1,027,334 1,025,096
----------- -----------
TOTAL ASSETS $13,481,607 $12,943,195
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 373,885 231,934
CURRENT PORTION OF CAPITALIZED LEASE 0 7,495
CURRENT PORTION OF INCOME TAXES PAYABLE 171,014 33,614
----------- -----------
TOTAL CURRENT LIABILITIES 544,899 273,043
----------- -----------
LONG-TERM LIABILITIES:
- ----------------------
LONG-TERM PORTION OF INCOME TAXES PAYABLE 737,000 737,000
----------- -----------
TOTAL LONG-TERM LIABILITIES 737,000 737,000
----------- -----------
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,
3,718,070 AND 3,756,270 SHARES ISSUED
AND OUTSTANDING AT 06/30/ 99 AND
9/30/98 RESPECTIVELY 371,807 375,627
ADDITIONAL PAID -IN-CAPITAL 2,606,899 2,606,899
RETAINED EARNINGS 9,221,002 8,950,626
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,199,708 11,933,152
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $13,481,607 $12,943,195
- ---------------------------------------- =========== ===========
</TABLE>
3
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED
06/30/99 06/30/98
-------- --------
SALES $2,135,545 $2,929,164
COST OF SALES 1,501,116 2,130,156
---------- ----------
GROSS PROFIT 634,429 799,008
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 953,228 958,544
---------- ----------
OPERATING (LOSS) (318,799) (159,536)
OTHER INCOME:
INTEREST INCOME 170,567 188,434
INTEREST EXPENSE (121) (1,491)
OTHER, NET (NOTE 8) 722,490 5,486
---------- ----------
INCOME BEFORE (PROVISION)
FOR INCOME TAXES 574,137 32,893
(PROVISION) FOR INCOME TAXES (207,400) (1,300)
---------- ----------
NET INCOME $ 366,737 $ 31,593
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,738,044 3,869,414
NET INCOME PER SHARE (BASIC AND DILUTED) $ 0.10 $ 0.01
========== ==========
4
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
06/30/99 06/30/98
SALES $ 987,828 $ 559,991
COST OF SALES 634,461 390,504
----------- -----------
GROSS PROFIT 353,367 169,487
SELLING, GENERAL & ADMINISTRATIIVE EXPENSES 312,759 357,130
----------- -----------
OPERATING INCOME ( LOSS) 40,608 (187,643)
OTHER INCOME:
INTEREST INCOME 57,076 61,835
INTEREST EXPENSE 0 340
OTHER, NET (NOTE 8) 716,653 2,054
----------- -----------
INCOME (LOSS) BEFORE (PROVISION)
BENEFIT FOR INCOME TAXES 814,33 ( 123,414
(PROVISION) BENEFIT FOR INCOME TAXES ( 296,400) 47,200
----------- -----------
NET INCOME (LOSS) $ 517,937 $( 76,214)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,725,982 3,817,622
NET INCOME PER SHARE (BASIC AND DILUTED) $ 0.14 $ (0.02
=========== ===========
5
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
06/30/99 06/30/98
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 366,737 $ 31,593
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 52,338 68,398
GAIN FROM SALE OF PROPERTY (702,402) 0
CHANGES IN OPERATING ACTIVITIES:
(INCR) IN ACCOUNTS RECEIVABLE (10,277) (93,326)
(INCR) DECR IN INVENTORY (306,616) 595,643
(INCR) IN OTHER ASSETS (29,093) (23,339)
(DECR) IN ACCOUNTS PAYABLE AND
ACCRUED EXPENSES (197,235) (76,559)
INCR (DECR) IN ACCRUED INCOME TAX 137,400 (121,700)
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (689,148) 380,710
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT (135,558) (140,792)
SALES OF INVESTMENTS - NET 345,115 21,502
PROCEEDS FROM SALE OF PROPERTY 798,960 0
---------- ----------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 1,008,517 (119,290)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PURCHASE OF OUTSTANDING SHARES (100,181) (479,362)
PRINCIPAL PAYMENT OF CAPITAL LEASE (7,495) (18,748)
---------- ----------
NET CASH (USED) BY FINANCING ACTIVITIES (107,676) (498,110)
NET INCREASE (DECREASE) IN CASH 211,693 (236,690)
CASH AT BEGINNING OF PERIOD 1,463,726 1,511,013
---------- ----------
CASH AT END OF PERIOD $1,675,419 $1,274,323
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST $ 121 $ 1,491
========== ==========
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 40,000 $ 118,000
========== ==========
</TABLE>
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, 1999, ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR THE
FISCAL YEAR ENDING SEPTEMBER 30, 1999. 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, 1998.
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:
06/30/99 9/30/98
-------- -------
RAW MATERIALS $1,466,293 $1,534,908
WORK IN PROCESS 4,052,404 3,879,230
FINISHED GOODS 1,595,554 1,393,497
---------- ----------
$7,114,251 $6,807,635
(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 (SFAS) NO. 115, "ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES."
HELD-TO-MATURITY SECURITIES ARE RECORDED AT AMORTIZED COST.
7
<PAGE>
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. UPON THE ASSUMPTION
THE COMPANY'S BUSINESS IS PROFITABLE THROUGHOUT THE NEXT SIX 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 $737,000 OR $120,000 PER YEAR. NO INTEREST IS
PAYABLE ON THIS UNPAID PORTION.
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 JUNE 30, 1999, 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. THE ADOPTION OF SFAS 128 DOES 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 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. THE ADOPTION OF SFAS NO. 130 HAS 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
8
<PAGE>
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. THE ADOPTION
OF SFAS NO. 131 HAS 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.
8. OTHER INCOME:
FOR THE QUARTER ENDED JUNE 30, 1999, OTHER INCOME INCLUDES THE GAIN
REALIZED FROM THE SALE OF THE COMPANY'S FOUR (4) ACRES OF VACANT LAND
IN THE AMOUNT OF $702,402.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
LIQUIDITY:
- ----------
DURING THE FIRST NINE MONTHS OF THE CURRENT FISCAL YEAR ENDING JUNE 30, 1999,
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 $1,105,000, COMPARED TO AN AVERAGE BALANCE OF $1,438,000 FOR
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998, OR AN AVERAGE BALANCE OF $1,277,000
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997. 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 1999. 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
$142,823 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.
RESULTS OF OPERATIONS:
- ----------------------
DURING THE THIRD QUARTER OF THE CURRENT FISCAL YEAR ENDED JUNE 30, 1999,
SHIPMENTS WERE $987,828, UP FROM $541,210 FOR THE QUARTER ENDED MARCH 31, 1999.
SHIPMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1999, WERE $2,135,545, DOWN FROM
$2,929,164, OR 27.1% FOR THE SAME PERIOD ONE YEAR AGO AND DOWN $756,438 OR 26.1%
FROM THE NINE MONTHS ENDED JUNE 30, 1997. EXPORT SHIPMENTS FOR THE NINE MONTHS
ENDED JUNE 30, 1999, WERE $744,644 OR 34.9% OF TOTAL SALES, DOWN $62,982 OR 7.8%
FROM THE SAME PERIOD ONE YEAR AGO. DOMESTIC SHIPMENTS FOR THE FIRST NINE MONTHS
OF THE CURRENT FISCAL WERE $1,390,901 OR 34.4% BEHIND SHIPMENTS FOR THE SAME
PERIOD ONE YEAR AGO OF $2,121,538.
SHIPMENTS FOR THE FIRST SIX MONTHS WERE LOWER THAN SHIPMENTS FOR THE SAME PERIOD
OF ONE YEAR AGO DUE TO EXTENDED DELIVERY SCHEDULES ON NEW CONTRACTS. WHILE
SHIPMENTS AGAINST THESE CONTRACTS BEGAN IN THE THIRD QUARTER FOR A SMALL
PORTION, THE MAJORITY OF THE SHIPMENTS AGAINST THE THREE LARGEST CONTRACTS WILL
10
<PAGE>
NOT BEGIN UNTIL THE FOURTH QUARTER OF THIS FISCAL YEAR AND WILL EXTEND OVER THE
NEXT FIFTEEN MONTHS. THESE CONTRACTS ARE FOR THE SUPPLY OF HF SUBSYSTEMS TO
PROVIDE FULL DUPLEX VOICE AND DATA CAPABILITY FOR LONG RANGE POINT-TO-POINT AND
GROUND-TO-AIR OPERATION AS WELL AS LONG RANGE SWITCH SYSTEMS. THE CURRENT
BACKLOG IS IN EXCESS OF 5.2 MILLION DOLLARS COMPARED TO A BACKLOG OF 668
THOUSAND DOLLARS FOR THE SAME PERIOD ONE YEAR AGO.
PROCUREMENT CYCLES CONTINUE TO BE EXTREMELY LONG DUE TO THE COMPLEXITY OF DESIGN
OF THE SYSTEM REQUIREMENTS EXPERIENCED IN THE MARKET TODAY. NEW MARKET
OPPORTUNITIES CONTINUE TO BE PURSUED IN NEW GEOGRAPHICAL AREAS NOT PREVIOUSLY
COVERED AND THE COMPANY CONTINUES TO REALIZE SOME BUSINESS FROM THESE AREAS. THE
COMPANY CONTINUES TO BE OPTIMISTIC FOR INCREASED BUSINESS IN THE FUTURE.
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 PLANS TO REPLACE OLDER SOFTWARE AND EQUIPMENT
WITH STATE-OF-THE-ART SOFTWARE AND EQUIPMENT THIS CALENDAR YEAR FOR MORE
EFFICIENT OPERATION AND INVENTORY CONTROL. THE COST FOR THIS PROJECT WAS
PREVIOUSLY ESTIMATED AT APPROXIMATELY $75,000. THE COMPANY ENGAGED A REPUTABLE
FIRM TO CONDUCT A SURVEY OF OUR REQUIREMENTS AND RECOMMEND THOSE SOFTWARE
VENDORS WITH THE APPROPRIATE PRODUCT FOR OUR NEEDS. BASED ON THE RESULT OF THE
SURVEY AND SUBSEQUENT ANALYSIS OF THE RECOMMENDED SOFTWARE, A SOFTWARE PACKAGE
HAS TENTATIVELY BEEN SELECTED. THE COST FOR THIS PROJECT HAS BEEN REVISED,
HOWEVER, TO APPROXIMATELY $200,000 FOR ALL SOFTWARE, HARDWARE, INSTALLATION, AND
TRAINING.
GENERAL AND ADMINISTRATIVE EXPENSES OF $953,228 DECREASED SLIGHTLY FROM THE SAME
PERIOD ONE YEAR AGO BY $5,316 AND IS EXPECTED TO CONTINUE AT THIS RATE.
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, I NC.
DATE: AUGUST,13, 1999 /S/ ROBERT URICHO, JR.,
-----------------------------
ROBERT URICHO, JR., PRINCIPAL
EXECUTIVE OFFICER
DATE: AUGUST 13, 1999 /S/SYNNOTT B. DURHAM
-----------------------------
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-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,675,419
<SECURITIES> 3,110,248
<RECEIVABLES> 484,342
<ALLOWANCES> 900
<INVENTORY> 7,114,251
<CURRENT-ASSETS> 9,344,025
<PP&E> 4,296,419
<DEPRECIATION> 3,269,085
<TOTAL-ASSETS> 13,481,607
<CURRENT-LIABILITIES> 544,899
<BONDS> 0
371807
0
<COMMON> 0
<OTHER-SE> 11,827,901
<TOTAL-LIABILITY-AND-EQUITY> 13,481,607
<SALES> 2,135,545
<TOTAL-REVENUES> 3,028,602
<CGS> 1,501,116
<TOTAL-COSTS> 1,501,116
<OTHER-EXPENSES> 953,228
<LOSS-PROVISION> 900
<INTEREST-EXPENSE> 121
<INCOME-PRETAX> 574,137
<INCOME-TAX> 207,400
<INCOME-CONTINUING> 366,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366,737
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
