-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DE81RnK0z5oELS5vMMhriPRAjGA9j755fkMb8g7YInTM8fM0OGWuvJmJLXU1v+TI k/QRp9s1hM26NAx1QUzuJg== 0001042910-98-001236.txt : 19981230 0001042910-98-001236.hdr.sgml : 19981230 ACCESSION NUMBER: 0001042910-98-001236 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNAIR ELECTRONICS INC CENTRAL INDEX KEY: 0000095366 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 590780772 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04334 FILM NUMBER: 98776964 BUSINESS ADDRESS: STREET 1: 3101 SW THIRD AVE STREET 2: EXECUTIVE OFFICES CITY: FORT LAUDERDALE STATE: FL ZIP: 33315 BUSINESS PHONE: 3055251505 MAIL ADDRESS: STREET 1: 3101 SW THIRD AVENUE CITY: FT LAUDERDALE STATE: FL ZIP: 33315 10-K 1 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 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 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 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 ITEM 6. SELECTED FINANCIAL DATA - --------------------------------
1998 1997 1996 1995 1994 ---------------- --------------- ---------------- --------------- --------------- 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
5 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 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 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------
CONSOLIDATED BALANCE SHEETS ASSETS September 30, --------------------------------------- 1998 1997 ----------------- --------------- 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 ================ ===============
Notes to Consolidated Financial Statements are an integral part of this statement. 8 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
CONSOLIDATED INCOME STATEMENTS Year Ended September 30, ---------------------------------------------------------- 1998 1997 1996 --------------- ---------------- ---------------- 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 ============== =============== ==============
Notes to Consolidated Financial Statements are an integral part of this statement. 9 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30, -------------------------------------------------- 1998 1997 1996 --------------- --------------- --------------- 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 ============== ============== ==============
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Common Stock Paid-in Retained Treasury Stock --------------------------- ------------------------------- Shares Amount Capital Earnings Shares Amount ------------ ------------- ------------------------------- ------------- ---------------- 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 =========== ============ ============== ============== ============ ===============
Notes to Consolidated Financial Statements are an integral part of this statement. 10 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:
Name of issuer and title of issue Principal Cost Market Carrying ------------------ --------------- --------------- --------------- --------------- 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 ============== ============== ============== ==============
11 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 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:
1998 1997 1996 -------------- -------------- --------------- 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 ================ ============== ==============
13 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:
Year ending Amount ----------- ----------- 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 ==========
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:
September 30, ----------------------------------------------------------------------------------- 1998 1997 1996 ------------------------- ------------------------- ------------------------- Number of Option Number of Option Number of Option Shares Price Shares Price Shares Price ------------- -------- ------------- -------- ------------- --------- 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 =========== ========== =========== ========== =========== =========
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 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:
Year Ended September 30, ----------------------------------------------------- Geographic area: 1998 1997 1996 -------------- --------------- -------------- 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 ============= ============== =============
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:
1998 ------------------------------------------------------------------- 1 2 3 4 --------------- ------------- --------------- -------------- 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
15 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ----------------------------------------------------------------------- FINANCIAL DISCLOSURE - -------------------- NONE 16 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------
Family Name Age Position Held Relationship - ---- --- ------------- ------------ 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
Note- All directors' terms are for one year and until their successors are duly elected and qualified. 17 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.
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 - ---- ------ ------- ------------------------ 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 --
18 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
Title Name and Address Amount and Nature 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 (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)
* 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 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Not Applicable ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K - --------------------------------------------------------------------------
(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
20 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 EX-27 2 FDS --
5 YEAR SEP-30-1998 OCT-01-1997 SEP-30-1998 1,463,728 3,131,753 474,065 0 6,807,635 8,786,346 4,257,310 3,232,214 12,943,195 273,043 0 375,627 0 0 11,557,525 12,943,195 3,746,991 3,993,252 2,750,976 2,750,976 1,195,963 0 1,717 52,035 14,000 38,035 0 0 0 38,035 .01 .01
-----END PRIVACY-ENHANCED MESSAGE-----