UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number I-4334
SUNAIR ELECTRONICS, INC.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-0780772
-------------------------------- -------------------
(STATE OR OTHER JURISDICTION) (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
3005 SW THIRD AVE., FT. LAUDERDALE, FL. 33315
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(ADDRESS OR PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER (INCLUDING AREA CODE) (954) 525-1505
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NONE
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 _____
Registrant's common stock - par value 10 cents, outstanding as of March 31, 2004
- 3,816,620 shares.
Transitional Small Business Disclosure format. Yes _____ No __X__
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
INDEX
*****
PAGE NO.
********
PART I. FINANCIAL INFORMATION:
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED CONDENSED BALANCE SHEETS - -
MARCH 31, 2004 AND SEPTEMBER 30, 2003 3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
SIX MONTHS ENDED MARCH 31, 2004 AND 2003 4
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - -
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
SIX MONTHS ENDED MARCH 31, 2004 AND 2003 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS 7-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED CONDENSED STATEMENTS 12-15
ITEM 3. CONTROLS AND PROCEDURES 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
- 2 -
PART I. FINANCIAL INFORMATION
SUNAIR ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
ASSETS
03/31/04 9/30/03
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,230,076 $ 1,022,175
Accounts receivable 2,190,815 1,768,772
Interest receivable 106,700 108,510
Inventories 6,678,120 7,053,241
Short term investments 1,998,546 1,500,000
Prepaid and other current assets 48,819 20,008
----------- -----------
Total Current Assets 12,253,076 11,472,706
INVESTMENTS 2,974,046 2,988,383
NOTE RECEIVABLE 334,986 334,986
PROPERTY, PLANT, AND EQUIPMENT, net 616,213 681,095
----------- -----------
TOTAL ASSETS $16,178,321 $15,477,170
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 342,407 $ 611,458
Income taxes payable 342,559 219,959
----------- -----------
Total Current Liabilities 684,966 831,417
INCOME TAXES PAYABLE, net of current
portion -- 122,000
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 2,000,000
shares authorized, none issued and
outstanding -- --
Common stock, $.10 par value, 25,000,000
shares authorized, 3,816,620, and
3,738,170 shares issued and outstanding
at March 31, 2004 and
September 30, 2003, respectively 381,662 373,817
Additional paid-in-capital 2,873,606 2,704,939
Retained earnings 12,238,087 11,444,997
----------- -----------
Total Stockholders' Equity 15,493,355 14,523,753
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,178,321 $15,477,170
=========== ===========
The accompanying notes are an integral part of these financial statements
- 3 -
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
SIX MONTHS ENDED
----------------
03/31/04 03/31/03
----------- -----------
SALES $ 4,530,456 $ 2,300,739
COST OF SALES 2,519,019 1,352,998
----------- -----------
GROSS PROFIT 2,011,437 947,741
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES 1,030,174 891,904
----------- -----------
OPERATING INCOME 981,263 55,837
OTHER INCOME:
INTEREST INCOME 124,483 165,570
OTHER, NET (4,045) (17,250)
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,101,701 204,157
PROVISION FOR
INCOME TAXES (308,600) (71,800)
----------- -----------
NET INCOME $ 793,101 $ 132,357
=========== ===========
NET INCOME PER SHARE:
BASIC $ 0.21 $ 0.04
=========== ===========
DILUTED $ 0.20 $ 0.04
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 3,787,249 3,692,570
=========== ===========
DILUTED 3,876,088 3,711,702
=========== ===========
The accompanying notes are an integral part of these financial statements
- 4 -
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
---------------------------
03/31/04 03/31/03
----------- -----------
SALES $ 3,215,882 $ 1,235,292
COST OF SALES 1,820,770 797,799
----------- -----------
GROSS PROFIT 1,395,112 437,493
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES 543,623 396,379
----------- -----------
OPERATING INCOME 851,489 41,114
OTHER INCOME:
INTEREST INCOME 62,051 88,407
OTHER, NET (2,878) (32,316)
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 910,662 97,205
PROVISION FOR
INCOME TAXES (290,100) (33,900)
----------- -----------
NET INCOME $ 620,562 $ 63,305
=========== ===========
NET INCOME PER SHARE:
BASIC $ 0.16 $ 0.02
=========== ===========
DILUTED $ 0.16 $ 0.02
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 3,809,777 3,692,570
=========== ===========
DILUTED 3,903,353 3,711,702
=========== ===========
The accompanying notes are an integral part of these financial statements
- 5 -
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
---------------------------
03/31/04 03/31/03
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 793,101 $ 132,357
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
DEPRECIATION 78,921 64,402
AMORTIZATION 14,337 14,337
(INCREASE) DECREASE IN ASSETS:
ACCOUNTS RECEIVABLE (422,043) (332,306)
INTEREST RECEIVABLE 1,810 (111,906)
INVENTORIES 375,121 (292,560)
PREPAID AND OTHER CURRENT ASSETS (28,811) (32,817)
INCREASE (DECREASE) IN LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (269,051) 394,095
INCOME TAXES PAYABLE 600 (568,200)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 543,985 (732,598)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY, PLANT, AND EQUIPMENT (14,050) (12,023)
PURCHASES OF INVESTMENTS (498,546) (218,615)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (512,596) (230,638)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
EXCERCISE OF STOCK OPTIONS 176,512 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 176,512 --
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 207,901 (963,236)
CASH AND CASH EQUIVALENTS, AT BEGINNING
OF PERIOD 1,022,175 2,422,833
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 1,230,076 $ 1,459,597
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR INCOME TAXES $ 308,000 $ 640,000
=========== ===========
The accompanying notes are an integral part of these financial statements
- 6 -
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION
THE ACCOMPANYING UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
HAVE BEEN PREPARED BY THE COMPANY PURSUANT TO THE RULES AND REGULATIONS
OF THE SECURITIES AND EXCHANGE COMMISSION AND IN ACCORDANCE WITH THE
INSTRUCTIONS TO FORM 10-QSB AND DO NOT INCLUDE ALL THE INFORMATION AND
FOOTNOTE DISCLOSURES NORMALLY INCLUDED IN CONSOLIDATED FINANCIAL
STATEMENTS PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES OF AMERICA. THE INFORMATION FURNISHED IN
THE INTERIM FINANCIAL STATEMENTS INCLUDES NORMAL RECURRING ADJUSTMENTS
AND REFLECTS ALL ADJUSTMENTS, WHICH, IN THE OPINION OF MANAGEMENT, ARE
NECESSARY FOR A FAIR PRESENTATION OF SUCH FINANCIAL STATEMENTS. FOR
FURTHER INFORMATION REFER TO THE CONSOLIDATED FINANCIAL STATEMENTS AND
FOOTNOTES THERETO INCLUDED IN THE COMPANY'S MOST RECENT AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN ITS
SEPTEMBER 30, 2003 ANNUAL REPORT ON FORM 10-KSB. OPERATING RESULTS FOR
THE SIX MONTHS ENDED MARCH 31, 2004 ARE NOT NECESSARILY INDICATIVE OF
THE RESULTS THAT MAY BE EXPECTED FOR THE YEAR ENDING SEPTEMBER 30,
2004.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
----------------
THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH ACCOUNTING
PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA 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.
ACCOUNTS RECEIVABLE
-------------------
ACCOUNTS RECEIVABLE CONSIST OF BALANCES DUE FROM SALES. THE COMPANY
MONITORS ACCOUNTS RECEIVABLE AND PROVIDES ALLOWANCES WHEN CONSIDERED
NECESSARY. AS OF MARCH 31, 2004 AND SEPTEMBER 30, 2003 ACCOUNTS
RECEIVABLE WERE CONSIDERED TO BE FULLY COLLECTIBLE, ACCORDINGLY NO
ALLOWANCE FOR DOUBTFUL ACCOUNTS WAS PROVIDED. IF AMOUNTS BECOME
UNCOLLECTIBLE, THEY WILL BE CHARGED TO OPERATIONS WHEN THAT
DETERMINATION IS MADE. THE COMPANY HAS LIMITED EXPOSURE TO BAD DEBT AS
DOMESTIC SALES ARE PRIMARILY TO THE U.S. GOVERNMENT OR LARGER DEFENSE
CONTRACTORS. INTERNATIONAL SALES ARE PRIMARILY CASH IN ADVANCE OF
SHIPMENT OR LETTERS OF CREDIT.
INVESTMENTS
-----------
CERTAIN INVESTMENTS THAT MANAGEMENT HAS THE INTENT AND ABILITY TO HOLD
TO MATURITY ARE REPORTED AT COST, ADJUSTED FOR AMORTIZATION OF PREMIUMS
AND ACCRETION OF DISCOUNTS THAT ARE RECOGNIZED IN INTEREST INCOME USING
THE INTEREST METHOD OVER THE PERIOD TO MATURITY.
MARKETABLE AND DEBT SECURITIES WHICH MANAGEMENT HAS CLASSIFIED AS
TRADING ARE CARRIED AT FAIR VALUE WITH NET UNREALIZED GAINS AND LOSSES
REPORTED IN OPERATIONS. REALIZED GAINS AND LOSSES ON MARKETABLE EQUITY
AND DEBT SECURITIES ARE RECOGNIZED UPON SALE USING THE SPECIFIC
IDENTIFICATION METHOD.
INVENTORIES
-----------
INVENTORIES, WHICH CONSIST OF RAW MATERIALS, WORK-IN-PROCESS, AND
FINISHED GOODS, ARE STATED AT THE LOWER OF COST OR MARKET VALUE, COST
BEING DETERMINED USING THE FIRST IN, FIRST OUT METHOD. FIXED AND
VARIABLE MANUFACTURING COSTS AND OVERHEAD ARE INCLUDED IN THE CARRYING
VALUES OF FINISHED GOODS AND WORK-IN-PROCESS. THE COMPANY RECORDS
RESERVES FOR INVENTORY SHRINKAGE AND OBSOLESCENCE, WHEN CONSIDERED
NECESSARY. FOR THE SIX MONTHS ENDED MARCH 31, 2004 INVENTORY SHRINKAGE
AND OBSOLESCENCE RESERVES INCREASED $50,800.
- 7 -
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 EXPENSE 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.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
-----------------------------------------------------------------------
THE COMPANY REVIEWS LONG-LIVED ASSETS FOR IMPAIRMENT WHENEVER EVENTS OR
CHANGES IN CIRCUMSTANCES INDICATE THAT THE CARRYING AMOUNT OF AN ASSET
MAY NOT BE RECOVERABLE. RECOVERABILITY OF ASSETS TO BE HELD AND USED IS
MEASURED BY A COMPARISON OF THE CARRYING AMOUNT OF AN ASSET TO FUTURE
UNDISCOUNTED CASH FLOWS EXPECTED TO BE GENERATED BY THE ASSET. IF SUCH
ASSETS ARE CONSIDERED TO BE IMPAIRED, THE IMPAIRMENT TO BE RECOGNIZED
IS MEASURED BY THE AMOUNT BY WHICH THE ASSETS EXCEEDS THE FAIR VALUE.
ASSETS TO BE DISPOSED OF ARE REPORTED AT THE LOWER OF THE CARRYING
AMOUNT OR FAIR VALUE LESS COSTS TO SELL.
REVENUE RECOGNITION
-------------------
THE COMPANY AND ITS SUBSIDIARY USE THE ACCRUAL BASIS OF ACCOUNTING.
SALES REVENUES ARE RECORDED WHEN PRODUCTS ARE SHIPPED AND TITLE HAS
PASSED TO UNAFFILIATED CUSTOMERS. INTEREST AND DIVIDENDS EARNED ON
INVESTMENTS ARE RECORDED WHEN EARNED.
FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
THE CARRYING AMOUNTS OF CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE,
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES, APPROXIMATE FAIR VALUE DUE TO
THE SHORT-TERM MATURITIES OF THESE ASSETS AND LIABILITIES. THE FAIR
MARKET VALUE OF OTHER FINANCIAL INSTRUMENTS IS PROVIDED BY THE USE OF
QUOTED MARKET PRICES AND OTHER APPROPRIATE VALUATION TECHNIQUES, BASED
ON INFORMATION AVAILABLE AT YEAR-END.
INCOME TAXES
------------
THE COMPANY ACCOUNTS FOR INCOME TAXES USING SFAS NO. 109, "ACCOUNTING
FOR INCOME TAXES", WHICH REQUIRES RECOGNITION OF DEFERRED TAX
LIABILITIES AND ASSETS FOR EXPECTED FUTURE TAX CONSEQUENCES OF EVENTS
THAT HAVE BEEN INCLUDED IN THE FINANCIAL STATEMENTS OR TAX RETURNS.
UNDER THIS METHOD, DEFERRED TAX LIABILITIES AND ASSETS ARE DETERMINED
BASED ON THE DIFFERENCE BETWEEN THE FINANCIAL STATEMENT AND TAX BASES
OF ASSETS AND LIABILITIES USING ENACTED TAX RATES IN EFFECT FOR THE
YEAR IN WHICH THE DIFFERENCES ARE EXPECTED TO REVERSE. A VALUATION
ALLOWANCE IS RECORDED FOR DEFERRED TAX ASSETS IF IT IS MORE LIKELY THAN
NOT THAT SOME PORTION OR ALL OF THE DEFERRED TAX ASSETS WILL NOT BE
REALIZED.
RESEARCH AND DEVELOPMENT
------------------------
EXPENDITURES FOR RESEARCH AND DEVELOPMENT ARE CHARGED TO OPERATION AS
INCURRED.
- 8 -
3. INVENTORIES
INVENTORIES CONSIST OF THE FOLLOWING
03/31/04 9/30/03
---------- ----------
MATERIALS $1,966,574 $2,352,471
WORK IN PROGRESS 4,212,944 3,957,855
FINISHED GOODS 498,602 742,915
----------
----------
$6,678,120 $7,053,241
========== ==========
4. EARNINGS PER COMMON SHARE -
BASIC EARNINGS PER SHARE AMOUNTS ARE COMPUTED BY DIVIDING THE NET
INCOME BY THE WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.
DILUTED EARNINGS PER SHARE AMOUNTS ARE COMPUTED BY DIVIDING NET INCOME
BY THE WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK, COMMON STOCK
EQUIVALENTS, AND STOCK OPTIONS OUTSTANDING DURING THE PERIOD.
5. 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.
6. INCOME TAXES:
DURING 1995, IT WAS DETERMINED THAT CONTINUED OPERATIONS OF ITS
INTEREST CHARGE-DOMESTIC INTERNATIONAL SALES CORPORATION (IC-DISC)
SUBSIDIARY'S TAX 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. FEDERAL TAX REGULATIONS PROVIDE FOR THE TAXATION OF SUCH
DISTRIBUTION OVER A TEN YEAR PERIOD IN EQUAL ANNUAL INCREMENTS.
UTILIZING THE MAXIMUM TAX RATES, THE INCOME TAX CONSEQUENCE OF SUCH
DISTRIBUTION WILL APPROXIMATE $122,000 PER YEAR. NO INTEREST IS PAYABLE
ON THIS UNPAID PORTION.
7. PREFERRED STOCK:
AT MARCH 31, 2004, THE COMPANY HAD 2,000,000 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.
- 9 -
8. STOCK OPTIONS:
AT THE FISCAL YEAR ENDED SEPTEMBER 30, 2003, OPTIONS TO PURCHASE
270,000 SHARES AT $2.25 PER SHARE HAD BEEN ISSUED TO KEY EMPLOYEES OF
THE COMPANY. ON NOVEMBER 6, 2003, THE COMPANY'S MAJORITY SHAREHOLDER
SOLD 1,994,000 COMMON SHARES TO AN UNRELATED THIRD PARTY, WHEREBY THE
NEW SHAREHOLDER OWNS APPROXIMATELY 53% OF THE COMPANY. DUE TO THE
MAJORITY CHANGE IN OWNERSHIP, ALL OF THE COMPANY'S OUTSTANDING STOCK
OPTIONS BECAME FULLY VESTED AND EXERCISABLE ON NOVEMBER 6, 2003.
OPTIONS FOR 45,600 WERE EXERCISED IN FISCAL 2003 AND 78,450 WERE
EXERCISED IN THE FIRST SIX MONTHS OF FISCAL 2004. 145,950 STOCK OPTIONS
ARE CURRENTLY EXERCISABLE. THE OPTIONS GRANTED SHALL BE EXERCISABLE UP
TO AND INCLUDING FIVE YEARS FROM THE DATE OF GRANT.
9. RECENT ACCOUNTING PRONOUNCEMENTS
IN NOVEMBER 2002, THE FASB ISSUED INTERPRETATION NO. 45, "GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS" WHICH EXPANDS PREVIOUSLY
ISSUED ACCOUNTING GUIDANCE AND DISCLOSURE REQUIREMENTS FOR CERTAIN
GUARANTEES. THE INTERPRETATION REQUIRES AN ENTITY TO RECOGNIZE AN
INITIAL LIABILITY FOR THE FAIR VALUE OF AN OBLIGATION ASSUMED BY
ISSUING A GUARANTEE. THE INITIAL RECOGNITION AND INITIAL MEASUREMENT
PROVISIONS OF FIN NO. 45 ARE APPLICABLE TO A COMPANY ON A PROSPECTIVE
BASIS TO GUARANTEES ISSUED OR MODIFIED AFTER DECEMBER 31, 2002.
HOWEVER, THE DISCLOSURE REQUIREMENTS IN FIN NO. 45 ARE EFFECTIVE FOR A
COMPANY'S FINANCIAL STATEMENTS FOR PERIODS ENDING AFTER DECEMBER 15,
2002. THE COMPANY IS NOT A PARTY TO ANY AGREEMENT IN WHICH IT IS A
GUARANTOR OF INDEBTEDNESS OF OTHERS THEREFORE THE INTERPRETATION DID
NOT AFFECT THE COMPANY'S FINANCIAL POSITION, RESULTS OF OPERATIONS OR
CASH FLOWS.
IN JANUARY 2003, THE FASB ISSUED INTERPRETATIONS NO. 46, "CONSOLIDATION
OF VARIABLE INTEREST ENTITIES". FIN NO. 46 ADDRESSES CONSOLIDATION BY
BUSINESS ENTERPRISES OF VARIABLE INTEREST ENTITIES (FORMERLY SPECIAL
PURPOSE ENTITIES OR "SPES"). THE COMPANY DOES NOT HAVE ANY VARIABLE
INTEREST ENTITIES AS DEFINED BY FIN NO. 46 AND THEREFORE THE
INTERPRETATION DID NOT AFFECT THE COMPANY'S FINANCIAL POSITION, RESULTS
OF OPERATIONS OR CASH FLOWS.
IN DECEMBER 2002, THE FASB ISSUED SFAS NO. 148, "ACCOUNTING FOR
STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE". SFAS NO. 148
DOES NOT ALTER THE PROVISIONS OF SFAS 123, NOR DOES IT REQUIRE
STOCK-BASED COMPENSATION TO BE MEASURED UNDER THE FAIR-VALUE METHOD.
RATHER, SFAS 148 PROVIDES ALTERNATIVE TRANSITION METHODS TO COMPANIES
THAT ELECT TO EXPENSE STOCK-BASED COMPENSATION USING THE FAIR-VALUE
APPROACH UNDER SFAS NO. 123. THE COMPANY WILL CONTINUE TO ACCOUNT FOR
STOCK-BASED COMPENSATION IN ACCORDANCE WITH APB NO. 25. THE COMPANY HAS
ADOPTED THE DISCLOSURE-ONLY PROVISIONS OF SFAS NO. 148. AS SUCH, THE
COMPANY DOES NOT EXPECT THIS STANDARD TO HAVE A MATERIAL IMPACT ON ITS
FINANCIAL POSITION OR RESULTS OF OPERATIONS.
- 10 -
IN APRIL 2003, THE FASB ISSUED STATEMENT NO. 149, "AMENDMENT OF
STATEMENT NO. 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES".
THIS STATEMENT AMENDS AND CLARIFIES FINANCIAL ACCOUNTING AND REPORTING
FOR DERIVATIVE INSTRUMENTS, INCLUDING CERTAIN DERIVATIVE INSTRUMENTS
EMBEDDED IN OTHER CONTRACTS AND FOR HEDGING ACTIVITIES UNDER STATEMENT
NO. 133, "ACCOUNTING FOR DERIVATIVES INSTRUMENTS AND HEDGING
ACTIVITIES." THE PROVISIONS OF THIS STATEMENT ARE EFFECTIVE FOR ALL
DERIVATIVES AND HEDGING ACTIVITIES ENTERED INTO AFTER JUNE 30, 2003.
THE COMPANY DID NOT HAVE ANY DERIVATIVES OR HEDGING ACTIVITIES AND
THEREFORE THE STANDARD DID NOT AFFECT THE COMPANY'S FINANCIAL POSITION,
RESULTS OF OPERATIONS OR CASH FLOWS.
IN MAY 2003, THE FASB ISSUED SFAS NO. 150 "ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
EQUITY". SFAS NO. 150 ESTABLISHES STANDARDS ON THE CLASSIFICATION AND
MEASUREMENT OF CERTAIN INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY. THE PROVISIONS OF SFAS NO. 150 ARE EFFECTIVE
FOR FINANCIAL INSTRUMENTS ENTERED INTO OR MODIFIED AFTER MAY 31, 2002
AND TO ALL OTHER INSTRUMENTS THAT EXIST AS OF THE BEGINNING OF THE
FIRST INTERIM FINANCIAL REPORTING PERIOD BEGINNING AFTER JUNE 15, 2003.
SFAS NO. 150 DID NOT HAVE A MATERIAL EFFECT ON THE COMPANY'S FINANCIAL
STATEMENTS.
- 11 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
INFORMATION REGARDING FORWARD LOOKING STATEMENTS:
-------------------------------------------------
SOME OF THE STATEMENTS IN THIS FORM 10-QSB, INCLUDING THOSE THAT CONTAIN THE
WORDS "ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE," "EXPECT," "SHOULD,"
"INTEND" AND OTHER SIMILAR EXPRESSIONS, ARE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THOSE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OR THOSE OF OUR INDUSTRY TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THOSE
FORWARD-LOOKING STATEMENTS. AMONG THE FACTORS THAT COULD CAUSE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENT TO DIFFER MATERIALLY FROM THOSE DESCRIBED OR
IMPLIED IN THE FORWARD-LOOKING STATEMENTS ARE GENERAL ECONOMIC CONDITIONS,
COMPETITION, POTENTIAL TECHNOLOGY CHANGES, CHANGES IN OR THE LACK OF
ANTICIPATED CHANGES IN THE REGULATORY ENVIRONMENT IN VARIOUS COUNTRIES, THE
ABILITY TO RAISE ADDITIONAL CAPITAL TO FINANCE EXPANSION, THE RISKS INHERENT
IN NEW PRODUCT AND SERVICE INTRODUCTIONS AND THE ENTRY INTO NEW GEOGRAPHIC
MARKETS AND OTHER FACTORS INCLUDED IN OUR FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"). COPIES OF OUR SEC FILINGS ARE AVAILABLE FROM
THE SEC OR MAY BE OBTAINED UPON REQUEST FROM US. WE DO NOT UNDERTAKE ANY
OBLIGATION TO UPDATE THE INFORMATION CONTAINED HEREIN, WHICH SPEAKS ONLY AS OF
THIS DATE.
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 AND THE SOFTWARE DEVELOPMENT, DESIGN, INTEGRATION
TESTING AND DOCUMENTATION OF C4ISR SYSTEMS UTILIZED FOR LONG RANGE VOICE AND
DATA COMMUNICATIONS IN FIXED STATION, MOBILE AND MARINE MILITARY AND
GOVERNMENTAL APPLICATIONS.
SUNAIR PRODUCTS AND ENGINEERING CAPABILITIES 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 FOREIGN GOVERNMENTAL AGENCIES
OR DIRECT TO THE U.S. GOVERNMENT.
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 WORKSTATIONS, ANTENNAE, POWER SOURCES, MODEMS,
MESSAGE SWITCHING DEVICES, CRYPTOGRAPHIC EQUIPMENT SOFTWARE AND THE LIKE
PROVIDED BY OTHERS. SUNAIR PRODUCTS EMPLOY ADVANCED SOLID STATE DESIGNS WITH
COMPUTER CONTROLLED NETWORKING CAPABILITIES. IN ADDITION, THE COMPANY CUSTOM
DESIGNS SYSTEMS INCORPORATING VARIOUS COMBINATIONS OF EQUIPMENT INTO RACKS AND
CONTROL CONSOLES THAT MAY INTERFACE WITH VALUE ADDED PRODUCTS AND SYSTEMS OF
OTHER MANUFACTURERS.
- 12 -
LIQUIDITY:
----------
FOR THE FIRST SIX MONTHS ENDED MARCH 31, 2004, THE COMPANY HAD POSITIVE CASH
FLOW FROM OPERATIONS OF $543,985 DUE TO PAYMENTS RECEIVED AGAINST SEVERAL LARGE
SHIPMENTS MADE IN THE FOURTH QUARTER OF FISCAL 2003. ACCOUNTS RECEIVABLE
INCREASED DUE TO LARGER SHIPMENTS MADE IN THE LATTER PART OF THE SECOND QUARTER
FOR WHICH PAYMENT IS NOT ANTICIPATED UNTIL THE FIRST PART OF THE THIRD QUARTER.
CASH FLOWS USED BY INVESTING ACTIVITIES FOR THE SIX MONTHS ENDED MARCH 31, 2004
WERE $512,596 WHICH CONSISTED OF SHORT TERM INVESTMENTS IN COMMERCIAL PAPER AND
PURCHASES OF SMALL QUANTITIES OF COMPUTER EQUIPMENT.
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES FOR THE SIX MONTHS ENDED MARCH 31,
2004 WERE $176,512 PROVIDED BY THE EXERCISE OF STOCK OPTIONS.
DURING THE FIRST SIX MONTHS OF FISCAL 2004, 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. THE COMPANY'S
KNOWN REQUIREMENTS CONSIST OF NORMAL OPERATING EXPENSES. DURING THIS SIX MONTH
PERIOD, CASH AND CASH EQUIVALENTS HAD AN AVERAGE BALANCE OF $1,400,500 AS
OPPOSED TO AN AVERAGE BALANCE OF $1,506,000 FOR THE TWELVE MONTHS ENDED
SEPTEMBER 30, 2003. CASH EQUIVALENTS 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 2004. THE CURRENT RATIO OF
THE COMPANY AS OF MARCH 31, 2004 WAS 17.9 COMPARED TO 13.8 AS OF SEPTEMBER 30,
2003.
THE COMPANY RECORDS RESERVES FOR INVENTORY SHRINKAGE AND OBSOLENSCENCE, WHEN
CONSIDERED NECESSARY. AS OF MARCH 31, 2004, ACCOUNTS AND NOTES RECEIVABLE WERE
CONSIDERED TO BE FULLY COLLECTIBLE, ACCORDINGLY NO ALLOWANCE FOR DOUBTFUL
ACCOUNTS WAS PROVIDED. IF AMOUNTS BECOME UNCOLLECTIBLE, THEY WILL BE CHARGED TO
OPERATIONS WHEN THAT DETERMINATION IS MADE.
NON CASH INTERIM RESERVES ARE MAINTAINED TO COVER ITEMS SUCH AS WARRANTY REPAIRS
IN PROCESS AND OTHER CHARGES THAT MAY BE IN DISPUTE. ALL MONETARY TRANSACTIONS
ARE IN U.S. DOLLARS AND NO LETTERS OF CREDIT INVOLVE FOREIGN EXCHANGE.
CAPITAL RESOURCES:
------------------
DURING THE FIRST SIX MONTHS OF FISCAL 2004, $14,050 WAS SPENT FOR CAPITAL
ASSETS. THESE FUNDS WERE PRIMARILY USED FOR NEW COMPUTER HARDWARE. NO
EXPENDITURES ARE COMTEMPLATED FOR PLANT EXPANSION OR EXTENSIVE MAINTENANCE IN
FISCAL 2004. THE COMPANY HAS NO LONG TERM DEBT AND NONE IS CONTEMPLATED, EXCEPT
THE COMPANY MAY INCUR DEBT TO FINANCE ACQUISITIONS ALTHOUGH THERE ARE CURRENTLY
NO AGREEMENTS OR PROPOSALS IN CONNECTION WITH ANY ACQUISITIONS. LIABILITIES
CONSIST OF CURRENT ACCOUNTS PAYABLE, ACCRUED EXPENSES RELATED TO THE CURRENT
ACCOUNTING PERIOD, AND THE CURRENT AND LONG TERM PORTION OF INCOME TAXES
PAYABLE.
- 13 -
RESULTS OF OPERATIONS:
----------------------
FIRST SIX MONTHS OF FISCAL YEAR ENDED 2004 COMPARED TO FIRST SIX MONTHS OF
FISCAL YEAR ENDED 2003.
DURING THE SECOND QUARTER OF THE CURRENT FISCAL YEAR ENDED MARCH 31, 2004,
SHIPMENTS OF $3,215,882 WERE UP 160.3% OR $1,980,590 FROM THE SAME QUARTER ONE
YEAR AGO LARGELY DUE TO SHIPMENTS TO A FOREIGN NAVY AS WELL AS CONTINUED
SHIPMENTS TO ONE U.S. CUSTOMER. SHIPMENTS FOR THE FIRST SIX MONTHS ENDED MARCH
31, 2004 WERE $4,530,456, UP FROM SHIPMENTS OF $2,300,739 OR 96.9% FOR THE SAME
PERIOD ONE YEAR AGO. SHIPMENTS TO A FOREIGN NAVY AND TO ONE U.S. CUSTOMER
ACCOUNTED FOR A LARGE PORTION OF TOTAL SHIPMENTS.
DOMESTIC SHIPMENTS FOR THE FIRST SIX MONTHS OF THE CURRENT FISCAL YEAR WERE
$2,516,150, OR 55.5% OF TOTAL SALES, UP $675,566 OR 36.7% FOR THE SAME PERIOD
ONE YEAR AGO. EXPORT SHIPMENTS FOR THE SIX MONTHS ENDED MARCH 31, 2004 WERE
$2,014,306 OR 44.5% OF TOTAL SALES, UP $1,554,151 OR 337.7% DUE TO SHIPMENT OF A
LARGE CONTRACT RECEIVED IN THE PREVIOUS QUARTER.
BACKLOG OF $3,332,000 WAS HIGHER AT MARCH 31, 2004 COMPARED TO $1,970,000 AT
MARCH 31, 2003 DUE TO ORDERS ON COMPLEX SYSTEMS RECEIVED IN THE LATTER PART OF
FISCAL 2003. PROJECTED ORDERS REMAINING ON MULTI-YEAR CONTRACTS RECEIVED IN 1999
AND 2000 ARE NOT INCLUDED IN THIS BACKLOG.
COST OF SALES WAS LOWER AT 55.6% OF SALES IN THE FIRST SIX MONTHS OF FISCAL 2004
AS COMPARED TO 58.8% OF SALES FOR THE SAME PERIOD ONE YEAR AGO DUE TO PRODUCT
MIX. INVENTORIES DECREASED 5.3% OR $375,121 FOR THE FIRST SIX MONTHS OF FISCAL
2004 DUE TO CURRENT SHIPMENTS OF INVENTORY PURCHASED IN PRIOR PERIODS. INVENTORY
LEVELS ARE ANTICIPATED TO CONTINUE TO DECLINE IN THE CURRENT YEAR DUE TO
PROCUREMENTS OF INVENTORY IN FISCAL 2003 TO MEET FUTURE REQUIREMENTS.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES INCREASED $138,270 OR 15.5% DUE TO
INCREASED RESEARCH AND DEVELOPMENT EXPENDURES FOR PRODUCT DESIGN TO MEET CURRENT
AND FUTURE CUSTOMER DEMANDS. EXPENSES CONTINUE TO BE INCURRED FOR EXPANDED
MARKET EXPOSURE AND INCREASED PRODUCT APPLICATION.
INTEREST INCOME DECREASED SLIGHTLY AS LOWER YIELDS CONTINUE ON INVESTMENTS.
OTHER INCOME DECREASED DUE TO REDUCED SCRAP SALES.
STRONG SALES FOR THIS REPORTING QUARTER HAVE PRODUCED FAVORABLE RESULTS. WITH
THESE LARGE SHIPMENTS OF SUNAIR STANDARD PRODUCTS THE BACKLOG REMAINS AT ABOVE
AVERAGE LEVELS DUE TO RECEIPT OF RECURRING DOMESTIC ORDERS.
THE COMPANY'S MARKETING TEAM HAS BEGUN VISITS TO ASIA AND MIDDLE EAST REGIONS TO
PURSUE CLOSING OF SEVERAL MAJOR CONTRACTS AND INCREASE BUSINESS DEVELOPMENT
ACTIVITY IN THREE NEW COUNTRIES FOUND TO HAVE HIGH POTENTIAL FOR HIGH FREQUENCY
COMMUNICATIONS SYSTEMS BOTH GROUND BASED AND SHIPBOARD. SEVERAL OPPORTUNITIES
HAVE BEEN IDENTIFIED AND MID/SHORT TERM SALES EFFORTS ARE UNDERWAY. TO SUPPORT
THIS TRIP, SUNAIR WILL ATTEND THE 9TH DEFENSE SERVICES ASIA EXHIBITION IN
MALAYSIA IN APRIL TO PRESENT OUR PRODUCTS AND CAPABILITIES TO NUMEROUS REGIONAL
MILITARY CONTINGENTS.
DOMESTIC OPPORTUNITIES RELATED TO DEPARTMENT OF HOMELAND SECURITY REQUIREMENTS
FOR CONTINGENCY OPERATIONS ARE BEING PURSUED. PROJECTS HAVING RECURRING NEEDS
AND TECHNOLOGY ADVANCEMENTS ARE IN FOCUS AND ORDERS THROUGH EXISTING OPEN
CONTRACTS ARE EXPECTED BEFORE FISCAL YEAR END.
- 14 -
RESULTS OF OPERATIONS: (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 ELECTION OF THE
SUBSIDIARY WAS DISCONTINUED AND ITS RETAINED EARNINGS OF APPROXIMATELY
$3,200,000 WERE DISTRIBUTED TO THE COMPANY. FEDERAL TAX REGULATIONS PROVIDE FOR
THE TAXATION OF SUCH DISTRIBUTION OVER A TEN YEAR PERIOD IN EQUAL ANNUAL
INCREMENTS. UTILIZING THE MAXIMUM TAX RATES, THE INCOME TAX CONSEQUENCES OF SUCH
DISTRIBUTION WILL APPROXIMATE $122,000 PER YEAR. NO INTEREST IS PAYABLE ON THIS
UNPAID PORTION.
- 15 -
ITEM 3. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. THE TERM "DISCLOSURE
CONTROLS AND PROCEDURES" IS DEFINED IN RULE 13A - 15(E) OF THE SECURITIES
EXCHANGE ACT OF 1934, OR THE EXCHANGE ACT. THIS TERM REFERS TO THE CONTROLS AND
PROCEDURES OF A COMPANY THAT ARE DESIGNED TO ENSURE THAT INFORMATION REQUIRED TO
BE DISCLOSED BY A COMPANY IN THE REPORTS THAT IT FILES UNDER THE EXCHANGE ACT IS
RECORDED, PROCESSED, SUMMARIZED AND REPORTED WITHIN REQUIRED TIME PERIODS. OUR
CHIEF EXECUTIVE OFFICER AND OUR CHIEF FINANCIAL OFFICER HAVE CONCLUDED, BASED ON
THEIR EVALUATION AS OF MARCH 31, 2004, THAT OUR DISCLOSURE CONTROLS AND
PROCEDURES ARE EFFECTIVE FOR RECORDING, PROCESSING, SUMMARIZING AND TIMELY
REPORTING THE INFORMATION WE ARE REQUIRED TO DISCLOSE IN OUR REPORTS FILES UNDER
THE EXCHANGE ACT.
(B) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. THERE WERE NO
SIGNIFICANT CHANGES IN THE COMPANY'S INTERNAL CONTROLS OR IN OTHER FACTORS THAT
COULD SIGNIFICANTLY AFFECT THESE CONTROLS SUBSEQUENT TO THE DATE OF THE MOST
RECENT EVALUATION OF THESE CONTROLS BY THE COMPANY'S CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER, INCLUDING ANY CORRECTIVE ACTIONS WITH REGARD TO
SIGNIFICANT DEFICIENCIES AND MATERIAL WEAKNESSES.
- 16 -
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
THE COMPANY HELD ITS 2003 ANNUAL MEETING OF STOCKHOLDERS AT THE
COMPANY'S OFFICES ON JANUARY 26, 2004. AT THE MEETING, THE
FOLLOWING PERSONS WERE ELECTED OR RE-ELECTED TO SERVE AS
DIRECTORS, WITH THE VOTES INDICATED:
DIRECTOR AFFIRMATIVE VOTES NEGATIVE VOTES
---------------------------------------------------------------------
MICHAEL D. HERMAN 3,571,370 0
GERARD P. LAHENEY 3,571,370 0
JAMES E. LAURENT 3,571,370 0
DR. ARNOLD HEGGESTAD 3,570,398 972
STEVEN P. OPPENHEIM 3,570,398 972
ALSO AT THE MEETING THE STOCKHOLDERS APPROVED A PROPOSAL TO
AMEND THE ARTICLES OF INCORPORATION OF THE COMPANY SO AS TO
INCREASE THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK, PAR
VALUE $.10 PER SHARE, THAT THE COMPANY IS AUTHORIZED TO ISSUE
FROM 6,000,000 TO 25,000,000 AND THE AGGREGATE NUMBER OF SHARES
OF PREFERRED STOCK, NO PAR VALUE PER SHARE, THAT THE COMPANY IS
AUTHORIZED TO ISSUE FROM 500,000 TO 2,000,000. THESE PROPOSALS
WERE APPROVED WITH 2,552,894 AFFIRMATIVE VOTES, 173,866 NEGATIVE
VOTES AND 1,051,010 ABSTENTIONS OR NON-VOTES.
THE COMPANY HELD A BOARD OF DIRECTORS MEETING IMMEDIATELY FOLLOWING
THE ANNUAL MEETING. AT THE BOARD MEETING, DR. HEGGESTAD AND MR.
OPPENHEIM WERE ELECTED TO SERVE ON THE AUDIT COMMITTEE OF THE BOARD.
ITEM 5. OTHER INFORMATION
NONE
- 17 -
PART II OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
31.1 CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
31.2 CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
32.1 CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
32.2 CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
(B) REPORTS ON FORM 8-K
ON MAY 5, 2004, THE COMPANY FILED A FORM 8-K DISCLOSING
INFORMATION UNDER ITEM 12.
- 18 -
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.
DATE MAY 17, 2004 /S/ JAMES E. LAURENT
------------ ---------------------------
JAMES E. LAURENT, PRINCIPAL
EXECUTIVE OFFICER
DATE MAY 17, 2004 /S/ SYNNOTT B. DURHAM
------------ ----------------------------
SYNNOTT B. DURHAM, PRINCIPAL
ACCOUNTING OFFICER
- 19 -