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 MARCH 31, 1999 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 03/31/99 - 3,733,070 SHARES
<PAGE>
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
INDEX
*****
<TABLE>
<CAPTION>
PAGE NO.
********
<S> <C>
PART I. FINANCIAL INFORMATION:
CONSOLIDATED CONDENSED BALANCE SHEETS - -
MARCH 31, 1999 AND SEPTEMBER 30, 1998 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
SIX MONTHS ENDED MARCH 31, 1999 AND 1998. 4
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
SIX MONTHS ENDED MARCH 31, 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
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
----------------- -----------------
ASSETS 3/31/99 9/30/98
- ------ ------- -------
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 901,381 $ 1,463,726
ACCOUNTS AND NOTES RECEIVABLE 488,631 474,065
INVENTORIES 7,115,554 6,807,635
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 41,963 40,920
----------------- -----------------
TOTAL CURRENT ASSETS 8,547,529 8,786,346
----------------- -----------------
INVESTMENT IN MARKETABLE SECURITIES 3,117,416 3,131,753
- -----------------------------------
PROPERTY, PLANT AND EQUIPMENT-NET 1,077,771 1,025,096
- ---------------------------------
TOTAL ASSETS $12,742,716 $12,943,195
============ ================ ================
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
- --------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 278,380 $ 231,934
CURRENT PORTION OF CAPITALIZED LEASE 0 7,495
CURRENT PORTION OF INCOME TAXES PAYABLE 0 33,614
----------------- -----------------
TOTAL CURRENT LIABILITIES 278,380 273,043
----------------- -----------------
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,
3,733,070 AND 3,756,270 SHARES ISSUED
AND OUTSTANDING AT 3/31/99 AND
9/30/98 RESPECTIVELY 373,307 375,627
ADDITIONAL PAID-IN-CAPITAL 2,606,899 2,606,899
RETAINED EARNINGS 8,747,130 8,950,626
----------------- -----------------
11,727,336 11,933,152
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $12,742,716 $12,943,195
======================================== ================= =================
</TABLE>
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
3/31/99 3/31/98
----------------- ------------------
<S> <C> <C>
SALES $1,147,717 $2,369,173
COST OF SALES 866,655 1,739,652
----------------- ------------------
GROSS PROFIT 281,062 629,521
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 640,469 601,414
----------------- ------------------
OPERATING INCOME (LOSS) ( 359,407) 28,107
OTHER INCOME:
INTEREST INCOME 113,491 126,599
INTEREST EXPENSE ( 121) ( 1,831)
OTHER, NET 5,837 3,432
----------------- ------------------
INCOME (LOSS) BEFORE (PROVISION)
BENEFIT FOR INCOME TAXES ( 240,200) 156,307
(PROVISION) BENEFIT FOR
INCOME TAXES 89,000 ( 48,500)
----------------- ------------------
NET INCOME (LOSS) $( 151,200) $107,807
================ =================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,744,074 3,895,310
NET INCOME PER SHARE (BASIC AND DILUTED)
$ ( 0.04) $ 0.03
================ =================
</TABLE>
4
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
3/31/99 3/31/98
----------------- ------------------
<S> <C> <C>
SALES $ 541, 210 $1,221,003
------------------
-----------------
COST OF SALES 416, 529 912,356
GROSS PROFIT 124, 681 308,647
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 338, 226 313,934
----------------- ------------------
OPERATING (LOSS) ( 213, 545) ( 5,287)
OTHER INCOME:
INTEREST INCOME 56,402 63,181
INTEREST EXPENSE ( 21) ( 1,451)
OTHER, NET 3,477 2,027
----------------- ------------------
INCOME (LOSS) BEFORE (PROVISION)
BENEFIT FOR INCOME TAXES ( 153,687) 58,470
(PROVISION) BENEFIT FOR
INCOME TAXES 57,400 ( 17,100)
----------------- ------------------
NET INCOME (LOSS) $( 96,287) $ 41,370
================ =================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 3,740,626 3,861,314
NET INCOME PER SHARE (BASIC AND DILUTED) $( 0.03) $ 0.01
================ =================
</TABLE>
5
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
3/31/99 3/31/98
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $( 151,200) $107,807
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 36,303 46,439
CHANGES IN OPERATING ACTIVITIES:
(INCR) IN ACCOUNTS RECEIVABLE ( 14,566) ( 541,597)
(INCR) DECR IN INVENTORY ( 307,919) 739,189
(INCR) IN OTHER ASSETS ( 1,043) ( 2,403)
(DECR) INCR IN ACCOUNTS PAYABLE AND
ACCRUED EXPENSES 116,170 43,867
(DECR) IN ACCRUED INCOME TAX ( 89,000) ( 4,500)
----------------- ------------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES ( 411,255) 348,802
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT & EQUIPMENT ( 88,979) ( 28,575)
SALES OF INVESTMENTS - NET 0 14,335
----------------- ------------------
NET CASH USED BY
INVESTING ACTIVITIES ( 88,979) ( 114,240)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
PURCHASE OF OUTSTANDING SHARES ( 54,616) ( 232,516)
PRINCIPAL PAYMENT OF CAPITAL LEASE ( 7,495) ( 14,510)
----------------- ------------------
NET CASH USED BY FINANCING ACTIVITIES ( 62,111) ( 247,026)
NET (DECREASE) IN CASH ( 562,345) ( 12,464)
CASH AT BEGINNING OF PERIOD 1,463,726 1,511,013
----------------- ------------------
CASH AT END OF PERIOD $901,381 $1,498,549
================ =================
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD $ 121 $ 1,231
FOR INTEREST ================ =================
CASH PAID DURING THE PERIOD FOR INCOME
TAXES $ 40,000 $ 30,000
================ =================
</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 SIX MONTHS ENDED
MARCH 31, 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:
<TABLE>
<CAPTION>
3/31/99 9/30/98
------------------ ------------------
<S> <C> <C>
RAW MATERIALS $1,471,108 $1,534,908
WORK IN PROCESS 3,866,748 3,879,230
FINISHED GOODS 1,777,698 1,393,497
------------------ ------------------
$7,115,554 $6,807,635
</TABLE>
(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. AMORTIZATION OF RELATED DISCOUNTS OR PREMIUMS IS INCLUDED IN
THE DETERMINATION OF NET INCOME.
7
<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 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 MARCH 31, 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
8
<PAGE>
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. 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.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY:
- ----------
DURING THE FIRST SIX MONTHS OF THE CURRENT FISCAL YEAR ENDING MARCH 31, 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 SIX MONTH PERIOD, CASH AND SHORT TERM INVESTMENTS MAINTAINED AN
AVERAGE BALANCE OF $1,109,000, 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 SIX MONTHS OF THE CURRENT FISCAL YEAR, THE COMPANY EXPENDED
$88,979 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 SECOND QUARTER OF THE CURRENT FISCAL YEAR ENDED MARCH 31, 1999,
SHIPMENTS WERE $541,210 DOWN FROM $606,507 FOR THE QUARTER ENDED DECEMBER 31,
1998. SHIPMENTS FOR THE SIX MONTHS ENDED MARCH 31, 1999 WERE $1,147,717, DOWN
FROM $2,369,173 OR 51.6% FOR THE SAME PERIOD ONE YEAR AGO AND UP FROM $1,002,860
OR 14.4% FROM THE SIX MONTHS ENDED MARCH 31, 1997. EXPORT SHIPMENTS FOR THE SIX
MONTHS ENDED MARCH 31, 1999 WERE $283,359 OR 24.7% OF TOTAL SALES, DOWN $268,858
OR 48.7% FROM THE SAME PERIOD ONE YEAR AGO. DOMESTIC SHIPMENTS FOR THE FIRST SIX
MONTHS OF THE CURRENT FISCAL YEAR WERE $864,358 OR 52.4% BEHIND SHIPMENTS FOR
THE SAME PERIOD ONE YEAR AGO OF $1,816,956.
10
<PAGE>
RESULTS OF OPERATIONS: (CONTINUED)
- ----------------------
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
CURRENT BACKLOG IS IN EXCESS OF 5.6 MILLION DOLLARS, SHIPMENTS AGAINST THE THREE
LARGEST CONTRACTS WILL NOT BEGIN UNTIL THE THIRD QUARTER OF THIS YEAR AND WILL
EXTEND OVER THE NEXT EIGHTEEN 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.
AS PREVIOUSLY DISCUSSED, PROCUREMENT CYCLES ARE EXTREMELY LONG DUE TO THE
COMPLEXITY OF DESIGN OF THE SYSTEM REQUIREMENTS EXPERIENCED IN THE MARKET TODAY.
NEW MARKET OPPORTUNITIES ARE BEING PURSUED IN GEOGRAPHIC AREAS NOT COVERED
PREVIOUSLY AND THE COMPANY HAS REALIZED SOME BUSINESS FROM THESE AREAS AND
CONTINUE 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 $640,469 INCREASED $39,055 FROM THE SAME
PERIOD ONE YEAR AGO PRIMARILY DUE TO INCREASED ENGINEERING AND MARKETING
EFFORTS. THE DIRECT LABOR FORCE CONTINUES AT A REDUCED LEVEL DUE TO SUFFICIENT
INVENTORY LEVELS IN FINISHED GOODS.
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.
MAY 13, 1999 /S/ ROBERT URICHO, JR.
DATE ------------------------------------ -----------------------------------
ROBERT URICHO, JR., PRINCIPAL
EXECUTIVE OFFICER
MAY 13, 1999 /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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 901,381
<SECURITIES> 3,117,416
<RECEIVABLES> 488,631
<ALLOWANCES> 600
<INVENTORY> 7,115,554
<CURRENT-ASSETS> 8,547,529
<PP&E> 4,346,289
<DEPRECIATION> 3,268,518
<TOTAL-ASSETS> 12,742,716
<CURRENT-LIABILITIES> 278,380
<BONDS> 0
<COMMON> 373,307
0
0
<OTHER-SE> 11,354,029
<TOTAL-LIABILITY-AND-EQUITY> 12,742,716
<SALES> 1,147,717
<TOTAL-REVENUES> 1,266,924
<CGS> 866,655
<TOTAL-COSTS> 866,655
<OTHER-EXPENSES> 640,469
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 121
<INCOME-PRETAX> (240,200)
<INCOME-TAX> (89,000)
<INCOME-CONTINUING> (151,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (151,200)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
