-----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, AJVtvI/uEXFScjAKcYiFK2DO/SzrQAUcVRXdx06nLEHYCQzPjKtgn/cy//iB8h/X gJX1tvbJpqrxGRImwj4jHA== 0001042910-97-000035.txt : 19971224 0001042910-97-000035.hdr.sgml : 19971224 ACCESSION NUMBER: 0001042910-97-000035 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971223 SROS: AMEX 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: 97743200 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 ANNUAL REPORT 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, 1997 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 $4,358,471 as of November 26, 1997 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 November 26, 1997 - 3,932,370 shares. Documents Incorporated by Reference: Portions of the annual shareholders' report for the years ended September 30, 1997 and September 30, 1996 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. 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 airframe manufacturers and 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: 1997 1996 ---------- ------- $1,796,474 $45,840 All orders at September 30, 1997 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 1997. During the fiscal years ended September 30, 1995, 1996 and 1997, Sunair expended $268,000, $115,000 and $278,000 respectively, on product development and engineering. e. The Company had 48 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, 1997, 1996 and 1995, 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.
1997 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. ------------ ------------ ------------ ------------ High 2 5/8 2 2/16 2 3 5/8 Low 1 3/4 1 5/16 1 11/16 1 3/16 1996 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. ------------ ------------ ------------ ------------ High 2 13/16 2 11/16 4 3/8 3 1/2 Low 2 3/16 2 2 1/8 2 1/2
(b) As of December 1, 1997, it is estimated that there were approximately 700 shareholders of record. 4 ITEM 6. SELECTED FINANCIAL DATA
1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ Sales $ 3,406,017 $ 2,930,620 $ 3,333,268 $ 2,494,777 $ 5,903,533 Cost of sales 2,133,927 1,967,720 2,113,354 1,388,600 3,797,138 ------------ ------------ ------------ ------------ ------------ Gross profit 1,272,090 962,900 1,219,914 1,106,177 2,106,395 Selling, general and administrative expenses 1,409,932 1,292,323 1,168,238 1,340,877 1,455,527 ------------ ------------ ------------ ------------ ------------ Income (loss) from operations (137,842) (329,423) 51,676 (234,700) 650,868 ------------ ------------ ------------ ------------ ------------ Other income (deductions) Interest income 241,472 238,127 232,523 321,609 333,614 Interest expense (3,555) (20,719) (79,718) (43,913) (32,693) Other income (expenses) 4,874 5,013 10,788 (39,760) 42,028 ------------ ------------ ------------ ------------ ------------ 242,791 222,421 163,593 237,936 342,949 ------------ ------------ ------------ ------------ ------------ Income (loss) before provision (benefit) for income taxes 104,949 (107,002) 215,269 3,236 993,817 ------------ ------------ ------------ ------------ ------------ Provision (benefit) for income taxes 44,000 922,217 47,800 (4,000) 186,000 ------------ ------------ ------------ ------------ ------------ Net income (loss) $ 60,949 $ (1,029,219) $ 167,469 $ 7,236 $ 807,817 ============ ============ ============ ============ ============ Net income (loss) per common share $0.02 $(0.26) $0.04 $0.00 $0.21 ============ ============ ============ ============ ============ Average shares outstanding 3,932,370 3,932,370 3,932,370 3,932,370 3,932,257 Cash dividend per share $0.00 $0.00 $0.00 $0.00 $0.00 Working capital year end $ 9,228,897 $ 9,185,119 $12,559,292 $ 8,396,050 $10,307,839 Total Assets $13,663,776 $13,611,006 $13,981,338 $13,783,537 $13,728,032 Stockholders' equity per share $3.16 $3.15 $3.41 $3.37 $3.36
5 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS LIQUIDITY During the fiscal year ended September 30, 1997, 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 $1,277,000 as opposed to an average balance of $1,626,000 for the twelve months ending September 30, 1996, or an average balance of $2,968,000 for the twelve months ended September 30, 1995. 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 1998. The current ratio of the Company as of September 30, 1997 was 26.7 compared to 35.0 as of September 30, 1996, or 31.6 as of September 30, 1995. 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 1997, $49,232 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 other than the long-term lease purchase of the AS400 computer. Liabilities consist of current accounts payable, accrued expenses related to the current accounting period and the capital lease. RESULTS OF OPERATIONS: During 1997 shipments of $3,406,000 were up 16% or $475,000 from fiscal 1996 and up 2% or $73,000 from fiscal 1995. Domestic shipments of $1,494,000 for fiscal 1997 were up 49% or $493,000 from fiscal 1996 and down 19% or 340,000 from fiscal 1995. Export shipments for fiscal 1997 were $1,912,000 down 1% or $18,000 from fiscal 1996 and up 28% or $413,000 from fiscal 1995. The above comparative sales reflect a continuing sluggish market for domestic and export activity. Selling, general and administrative expenses increased $118,000 or 9% from fiscal 1996 and were 21% higher than fiscal 1995 expenses. Interest income remained lower due to lower interest rates. The backlog of September 30, 1997 was $1,796,474 compared to the September 30, 1996 backlog of $45,840. The requirement for "stand alone" radio boxes no longer exists, but rather a total systems concept with requirements for voice, error free data, facsimile, security, automatic linking, multiple routing alternatives (HF, VHF, satellite telephone lines, microwaves, etc.) The scope of this new market requires extensive planning and coordination on the buyer's part to define his requirements and more direct marketing involvement by the seller. In pursuit of this market change, we have focused marketing and R&D efforts to satisfy these new requirements and have currently identified 62 such opportunities in 23 countries. 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. A new generation series HF digital radio communication system is in developement. This system is designed to be fully compatible with the Pathfinder 6 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. The company continues to supply equipment to a variety of world-wide users, 80% of whom are governments as well as repeat customers such as the U.S. Coast Guard and FEMA (Federal Emergency Management Agency). The U.S. Coast Guard's new construction programs for buoy tenders and coastal patrol boats up to 200' continue to yield orders as forecasted. A larger FEMA contract was received in the final quarter of '97 for over 1.5 million dollars for delivery in fiscal 1998. A computer automated test system for product test and final quality audit was implemented in fiscal 1997 reducing test time from one hour to approximately three minutes with printed results. Sunair International Sales Corporation (SISC) a wholly owned subsidiary, was treated as an Interest Charge-Domestic International Sales Corporation (IC-DISC) in prior years. This allowed taxes on the income retained in the IC-DISC to be deferred with interest paid on the accumulated balance of deferred taxes. Prior to 1994 deferred income taxes were not provided on SISC's prior year's undistributed retained earnings since it was intended to be indefinitely invested. These deferred income taxes had accumulated to over $1,000,000 on undistributed retained earnings of approximately $3,200,000. The Company has determined it is no longer advantageous to treat SISC as an IC-DISC, and accordingly, the IC-DISC status was discontinued. This did, however, require that income taxes be provided for in fiscal 96 on the IC-DISC retained earnings in the amount of $985,000. This not only eliminated the interest paid each year on the deferred taxes but the Internal Revenue Service also allows this income to be reported over ten (10) years. With the termination of the IC-DISC status, the Company has plans to establish a Foreign Sales Corporation to realize a true tax savings on exported goods, rather than just a deferral. The termination of the IC-DISC status is necessary to implement a Foreign Sales Corporation. 7 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS
ASSETS September 30, ----------------------------------- 1997 1996 -------------- -------------- CURRENT ASSETS Cash and cash equivalents $ 1,511,013 $ 1,721,839 Accounts receivable 430,294 181,173 Inventories 7,590,906 7,402,036 Prepaid expenses and other current assets 55,863 150,080 ----------- ----------- 9,588,076 9,455,128 INVESTMENTS 3,160,423 3,189,094 PROPERTY, PLANT, AND EQUIPMENT Land 224,299 224,299 Buildings and improvements 1,692,383 1,690,998 Machinery and equipment 2,132,927 2,085,080 ----------- ----------- 4,049,609 4,000,377 Less: Accumulated depreciation 3,134,332 3,033,593 ----------- ----------- 915,277 966,784 ----------- ----------- $13,663,776 $13,611,006 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY September 30, -------------------------------- CURRENT LIABILITIES 1997 1996 ----------- ----------- Accounts payable and accrued expenses $ 304,980 $ 247,289 Current portion of capitalized lease 24,585 22,720 Current portion of income taxes payable 29,614 0 ----------- ----------- 359,179 270,009 LONG-TERM LIABILITIES Long-term portion of capitalized lease 8,178 33,527 Long-term portion of income taxes payable 860,000 932,000 ----------- ----------- 868,178 965,527 ----------- ----------- 1,227,357 1,235,536 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, 3,932,370 shares issued and outstanding 393,237 393,237 Additional paid-in-capital 2,606,899 2,606,899 Retained earnings 9,436,283 9,375,334 ----------- ----------- 12,436,419 12,375,470 $13,663,776 $13,611,006 =========== ===========
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, 1997 and 1996 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1997. 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, 1997 and 1996 and the results of its operations and cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. November 18, 1997 Puritz and Weintraub, LLP Certified Public Accountants
CONSOLIDATED INCOME STATEMENTS Year Ended September 30, ----------------------------------------------------- 1997 1996 1995 ------------ ----------- ----------- Sales $ 3,406,017 $ 2,930,620 $ 3,333,268 Cost of sales 2,133,927 1,967,720 2,113,354 ------------- ----------- ------------ Gross profit 1,272,090 962,900 1,219,914 Selling, general and administrative expenses 1,409,932 1,292,323 1,168,238 ------------- ----------- ------------ Income (loss) from operations (137,842) (329,423) 51,676 ------------- ----------- ------------ Other income (deductions): Interest income 241,472 238,127 232,523 Interest expense (3,555) (20,719) (79,718) Other income (expenses) 4,874 5,013 10,788 ------------- ----------- ------------ 242,791 222,421 163,593 ------------- ----------- ------------ Income (loss) before provision for income taxes 104,949 (107,002) 215,269 Provision for income taxes 44,000 922,217 47,800 ------------- ----------- ------------ Net income (loss) $ 60,949 $(1,029,219) $ 167,469 ============= =========== ============ Net income (loss) per common share $0.02 $(0.26) $0.04 ============= ============ ============= Average shares outstanding 3,932,370 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, ----------------------------------------------- 1997 1996 1995 -------------- ----------- ------------ OPERATING ACTIVITIES Net income (loss) $ 60,949 $(1,029,219) $ 167,469 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 129,410 109,091 105,159 (Increase) decrease in accounts receivable (249,121) 548,605 (543,044) (Increase) decrease in inventory (188,870) 274,316 (183,967) Decrease in prepaid and other assets 94,217 5,784 5,209 Increase (decrease) in accounts payable and accrued expenses 57,691 (142,552) 3,700 Increase in income taxes payable (42,386) 932,000 0 Increase (decrease) in deferred income taxes 0 (108,800) 46,800 ----------- ----------- ----------- Net cash provided by (used in) operating activities (138,110) 589,225 (398,674) ----------- ----------- ----------- INVESTING ACTIVITIES Purchase of property, plant, and equipment (49,232) (64,666) (142,054) Sale (purchase) of investments, net 0 (3,189,094) 4,006,864 ----------- ----------- ----------- Net cash provided by (used in) investing activities (49,232) (3,253,760) 3,864,810 ----------- ----------- ----------- FINANCING ACTIVITIES Principal payments of capital lease (23,484) (21,761) (19,404) ----------- ----------- ----------- Net cash (used in) financing activities (23,484) (21,761) (19,404) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (210,826) (2,686,296) 3,446,732 Cash and cash equivalents at beginning of the year 1,721,839 4,408,135 961,403 ----------- ----------- ----------- Cash and cash equivalents at end of the year $ 1,511,013 $ 1,721,839 $ 4,408,135 =========== =========== =========== Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 3,555 $ 5,225 $ 44,904 =========== =========== =========== Cash paid during the year for income taxes $ 0 $ 169,119 $ 0 =========== ============ ===========
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Treasury Stock --------------------------- Paid-in Retained ------------------------------ Shares Amount Capital Earnings Shares Amount ------------ ------------- -------------- --------------- ------------- -------------- Balances at 9/30/94 4,800,740 $ 480,074 $2,606,899 $ 15,106,858 868,370 $ (4,956,611) 9/30/95 net income 0 0 0 167,469 0 0 --------- ---------- ---------- ------------ -------- ------------ Balances at 9/30/95 4,800,740 480,074 2,606,899 15,274,327 868,370 (4,956,611) 9/30/96 net (loss) 0 0 0 (1,029,219) 0 0 Retirement of treasury stock (868,370) (86,837) 0 (4,869,774) (868,370) 4,956,611 --------- ---------- ---------- ------------ -------- ------------ 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 ========= ========== ========== ============ ======== ============
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. and its wholly-owned subsidiary, Sunair International Sales Corporation, (the "Company"). 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, 1997 and 1996. 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, 1997 and 1996:
Name of issuer and title of issue Principal Cost Market Carrying ------------------ ----------- ----------- ---------- ----------- 1997 PEFCO 7.95% secured note series UU due November 1, 2006 $2,900,000 $3,215,375 $3,149,226 $3,160,423 ========== ========== ========== ========== 1996 PEFCO 7.95% secured note series UU due November 1, 2006 $2,900,000 $3,215,375 $3,058,601 $3,189,094 ========== ========== ========== ==========
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 $278,000 in 1997, $115,000 in 1996, and $268,000 in 1995. Income (loss) per share Income (loss) per share is based upon the weighted average number of shares outstanding during each year. Shares subject to options are not included in the computation since the present effects thereof are not materially dilutive. 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 1997 presentations. 2. Income Taxes The components of the Company's income tax (benefit) provision are as follows:
Current: 1997 1996 1995 ------------- ------------ ------------- Federal $ 37,000 $ 841,917 $ 1,000 State 7,000 80,300 0 ------------- ------------ ------------- 44,000 922,217 1,000 ------------- ------------ ------------- Deferred: Federal 0 0 43,000 State 0 0 3,800 ------------- ------------ ------------- 0 0 46,800 ============= ============ ============= $ 44,000 $ 922,217 $ 47,800 ============= ============ ============= Income (loss) before income taxes and use of net operating losses $ 104,949 $ (107,002) $ 215,269 Income tax 44,000 922,217 1,000 Deferred income taxes 0 0 (46,800) ------------- ------------ ------------ Net income (loss) $ 60,949 $ (1,029,219) $ 167,469 ============= ============ ============
12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Income Taxes (continued) 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 seven years, excluding such incremental income, the aggregate income tax payable as a consequence of such distribution will approximate a maximum of $860,000 or $120,000 per year. Interest will no longer accrue on the unpaid portion of the tax amount. At September 30, 1997, the Company estimates an underpayment of its current year's tax of approximately $30,000 compared to an overpayment of approximately $109,000 at September 30, 1996, which was reflected in prepaid expenses and other current assets. The total provision for 1997 and 1996 is more than amounts computed by applying the statutory rates to income before income taxes, and the total provisions for 1995 are less than amounts computed by applying the statutory rates to income before income taxes for the following reasons:
1997 1996 1995 ---------- ---------- ---------- Income taxes at the statutory rates $ 35,683 $ (36,381) $ 73,191 State income taxes, net of federal tax benefit 2,000 54,000 0 Tax attributable to distributed earnings of SISC 0 984,717 0 Book/tax difference attributable to depreciation 15,000 (40,000) 0 Tax free income (13,600) (10,200) (28,000) Capital losses 0 (22,400) 3,400 Other 4,917 (7,519) (791) ---------- ---------- ---------- $ 44,000 $ 922,217 $ 47,800 ========== ========== ========== 3. Inventories Inventories consist of the following: September 30, ------------------------------------------- 1997 1996 1995 ---------- ---------- ---------- Materials $1,695,962 $1,507,724 $1,609,298 Work in Process 4,109,569 3,341,022 3,047,844 Finished goods 1,785,375 2,553,290 3,019,209 ---------- ---------- ---------- $7,590,906 $7,402,036 $7,676,351 ========== ========== ==========
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 ----------- ------- 1998 $26,976 1999 7,568 ------- Total minimum lease payments $34,544 Less amount representing interest 1,781 ------- Obligations under capital leases 32,763 Less current portion 24,585 ------- $ 8,178 ======= 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 shares were issued and outstanding at September 30, 1997 and 1996. The Company has 6,000,000 authorized shares of common stock, $.10 par value, that may be issued. At September 30, 1996, the Company retired 868,370 shares of its treasury stock leaving 3,932,370 shares issued and outstanding. 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. During fiscal year ended September 30, 1997, these options were cancelled. The following is a summary of outstanding stock options:
September 30, ----------------------------------------------------------------------------- 1997 1996 1995 ---------------------- --------------------- --------------------- Number of Option Number of Option Number of Option Shares Price Shares Price Shares Price --------- ------ --------- ------ --------- ------ Beginning of year 100,000 $3.00 20,100 $1.375 23,100 $1.375 Cancelled (100,000) 3.00 (20,100) 1.375 (3,000) 1.375 Granted 0 0 100,000 3.000 0 0 -------- ----- ------- ------ ------ ------ End of Year 0 0 100,000 $3.000 20,100 $1.375 ======== ===== ======= ====== ====== ======
14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 1997, the Company did not contribute to the plan. 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: 1997 1996 1995 ---------- ---------- ---------- Europe $ 142,432 $ 99,528 $ 117,194 Asia 318,855 951,589 911,023 South America 65,865 33,803 129,506 Africa 990,762 618,167 40,541 North America 1,521,873 1,009,967 1,850,578 Australia 366,230 217,566 284,426 ---------- ---------- ---------- $3,406,017 $2,930,620 $3,333,268 ========== ========== ========== Sales to U.S. governmental agencies $ 800,740 $ 553,040 $1,461,840 ========== ========== ========== Direct sales to foreign governments $1,011,431 $ 609,167 $ 427,457 ========== ========== ==========
8. Quarterly Information (unaudited) Summarized quarterly results of operations and common stock market values for each quarter of fiscal year ended September 30, 1997 and 1996 are as follows:
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 2/16 2 3 5/8 Low 1 3/4 1 5/16 1 11/16 1 3/16 1996 ------------------------------------------------------------- 1 2 3 4 --------- ---------- ---------- ----------- Sales $ 890,711 $1,109,661 $ 462,995 $ 467,253 Gross Profit 331,218 398,407 117,450 115,825 Net income 83,095 68,556 (124,331) (1,056,539) Net income per common share $0.02 $0.01 $(0.03) $(0.26) ========= ========== ========== =========== Dividends per share None None None None ========= ========== ========== =========== Market price per share High 2 13/16 2 11/16 4 3/8 3 1/2 Low 2 3/16 2 2 1/8 2 1/2
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Family Name Age Position Held Relationship - ---- --- ------------- ------------ Robert Uricho, Jr. 82 Chairman of the Husband of Board, President, Shirley Uricho Chief Executive Officer and Director Since 1956 Shirley Uricho 64 Assistant Wife of Secretary Robert Uricho, Jr. Since 1959 Acting Secretary Since 1992 James E. Laurent 61 Vice President/ None Marketing Since 1988 Synnott B. Durham 56 Cost Manager None Since 1979 Treasurer, Chief Financial Officer Since 1994 Earl M. Anderson, Jr. 72 Director None Since 1969 George F. Arata, Jr. 68 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, 1997 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 (7 Persons including the 1 named above) $416,478 --
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 1997. (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 57.80% 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 57.80% 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 57.95% 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 3,932,370 shares outstanding at November 26, 1997. 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 30,1997 and 1996 Page 8 Statements of Consolidated Income for each of the three years in the period ended September 30, 1997 Page 9 Statements of stockholders' equity for each of the three years in the period ended September 30, 1997 Page 10 Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 1997 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 18, 1997 ----------------- 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 Acting 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-30-1997 OCT-01-1996 SEP-30-1997 1,511,013 3,160,423 430,294 0 7,590,906 9,588,076 4,049,609 3,134,332 13,663,776 359,179 0 0 0 393,237 12,043,182 13,663,776 3,406,017 3,647,489 2,133,927 2,133,927 1,409,932 0 3,555 104,949 44,000 60,949 0 0 0 60,949 .02 .02
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